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Kan Says $11 Billion Stimulus Plan, BOJ Steps Will Help Economy

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Aug. 30 (Bloomberg) -- Prime Minister Naoto Kan said Japan is preparing a 920 billion yen ($10.8 billion) stimulus plan to boost employment and help small businesses threatened by the rising yen and prolonged deflation.

His announcement came the same day the Bank of Japan said it would expand a bank-lending program to safeguard the recovery. Kan praised the move and Governor Masaaki Shirakawa said the central bank is ready to take more action as needed.

The yen climbed, reversing earlier declines, on concern the joint action is a continuation of policies that have failed to spur domestic demand and prevent 17 straight months of falling consumer prices.

“There is no magic bullet that will fight the specter of deflation,” said Jesper Koll, Tokyo-based head of equity research at JPMorgan Chase & Co. “The stimulus impact will be limited. There needs to be a concerted effort on monetary policy, on fiscal policy.”

Kan said the stimulus package will be ready on Sept. 10, four days before the ruling Democratic Party of Japan votes on whether to keep him as its leader or replace him with challenger Ichiro Ozawa. The party chief is ensured of being prime minister because the DPJ holds a majority in the lower house of parliament.

The new stimulus will extend incentive programs to buy energy-saving household appliances and include measures to help graduates find jobs, Kan’s administration said in a statement. It will also support small and mid-sized-companies struggling to cope with the yen’s gain to a 15-year high against the dollar and map out measures to help strengthen domestic investment.

Two Pillars

“The stimulus package and the BOJ decision form two pillars in responding to the current situation,” Kan told reporters in Tokyo. The package made no mention of a need to issue more government bonds, something Kan has resisted due to Japan’s swelling debt burden, the world’s largest. The government may compile an extra budget depending on economic conditions, Kan said, without elaborating.

Downside risks to Japan’s economy are increasing, the government statement said. Japan is ready to take “bold” action in currency markets because volatile moves threaten economic stability, it said.

Central bank policy makers today decided at an emergency meeting to expand an existing credit program to lenders after Kan last week pressed them to bolster the faltering economy“swiftly.”

To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Bill Austin at billaustin@bloomberg.net