PM Yoshihiko Noda and former PM Shinzo Abe during a general election debate November 30.

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Japan approves $10.7bn stimulus aimed at helping small businesses, unemployed workers and earthquake victims

The stimulus is Japan's second in a month and comes as the country hovers on the brink of its fifth recession in 15 years

Former PM Shinzo Abe of the Liberal Democrats is likely to win Japan's December 16 general election polls suggest

Financial Times  — 

Japan’s government has approved its second round of stimulus in a little more than a month, as prime minister Yoshihiko Noda tries to pep up a flagging economy in the run-up to December’s elections.

On Friday the cabinet announced that it would tap reserve funds to spend Y880bn ($10.7bn) on a variety of measures, including rebuilding areas hit by the March 2011 earthquake, employment support and aid to cash-strapped small businesses. The plan is roughly double the size of a package announced in late October, which was also drawn mostly from reserves and aimed at reconstruction efforts.

The stimulus comes as Japan hovers on the brink of a technical recession, its fifth of the past 15 years, as manufacturers cut production amid a steady worsening in their sales and profit outlook. Falling exports were the main contributor to a 0.9 per cent contraction in gross domestic product between July and September, and economists are braced for another in the three months to December. Last week the government slashed its quarterly assessment of business sentiment in all 11 regions of the country – the first clean sweep since February 2009 – blaming sluggish output and consumption.

Economic data released on Friday were a little more encouraging, showing an unexpected rise of 1.8 per cent in industrial production from September to October. The nationwide consumer price index (excluding fresh food) was unchanged from a year ago, improving from five months of year-on-year declines to September.

However, with more job cuts expected in a manufacturing sector exposed to tepid demand in developed economies and an uncertain outlook in China, analysts expect renewed deflationary pressure on the world’s third-largest economy.

“We are yet to see any light out of this recession tunnel,” said Takiji Okubo, principal at Japan Macro Advisors, a Tokyo consultancy.

The government fears that if the economy slips further, it could threaten plans to increase consumption tax from 2014. Provisions attached to the legislation, passed in August, require the government to consider the overall economic situation before implementing any increase.

According to the latest opinion poll carried out by the Nikkei newspaper, the Liberal Democratic party is leading with 23 per cent support, followed by the recently created Japan Restoration party on 15 per cent and Mr Noda’s ruling Democratic Party of Japan on 13 per cent.