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Tuesday, December 8, 2009

Japan Agrees Stimulus package

Collection From BBC News

Japan has agreed a 7.2 trillion yen ($81bn; £48bn) stimulus plan designed to prevent the country's economy from slipping back into recession.Japan's economy grew for the second straight quarter between July and September, but the return of deflation has sparked fears growth could stall.

The strong yen is also holding back Japanese exporters. The stimulus was due to be announced last Friday but was delayed after disagreements over its size.

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'Fundamental issues'

"We must present an economic package promptly in order to make the economic recovery solid in the face of the current severe economic and employment situation, the yen's rise and deflation," the government said.

"We will do our utmost to regain Japan's vigour." However, analysts were sceptical about the impact the package would have.

"This may help the economy somewhat, but it doesn't even begin to address the more fundamental issues facing Japan, such as weakness in the global economy and deflation," said Yasunari Ueno at Mizuho Securities.

'The lost decade'

After four consecutive quarters of contraction, Japan finally emerged from recession earlier this year when the economy grew by 0.9% in the April-to-June quarter. It then grew by 1.2% between July and September.

But the return of deflation for the first time since 2006 has dampened confidence. Deflation means falling prices, which are bad for an economy as consumers hold off from spending, as they know they can buy the same goods for less in the future.

Japan has a history of struggling with deflation. The 1990s are often referred to as Japan's "lost decade" because of its 10-year struggle with falling prices.

It followed a collapse in prices in the housing market and the stock market at the end of the 1980s.



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