Japanese Prime Minister Yoshihiko Noda, right, of the ruling Democratic Party of Japan, listens to Japan's largest opposition Liberal Democratic Party leader Shinzo Abe during a debate for the coming lower house elections by party leaders in Tokyo Friday, Nov. 30, 2012. Japan's cabinet approved an a stimulus program to help boost its sluggish economy on Friday.Koji Sasahara/The Associated Press
Japan's cabinet approved a $10.7-billion economic stimulus package Friday just weeks before an election the ruling party is expected to lose, while analysts questioned its likely benefits.
The new spending of ¥880-billion ($10.7-billion U.S.) was more than double a package announced in October as the country gets set for polls that most say will usher in its seventh prime minister in six years.
The move, which came as official data showed Japan posted a surprise uptick in factory production last month, will also likely trigger vote-buying criticism from opposition lawmakers.
The spending – which will come out of reserve funds – will focus on boosting growth in a range of sectors, including health care and agriculture, as well as on public works projects following last year's quake-tsunami disaster.
Opinion polls suggest Prime Minister Yoshihiko Noda and his Democratic Party of Japan will be defeated by main opposition leader Shinzo Abe who heads the Liberal Democratic Party.
Mr. Abe has vowed to spend heavily on public works and pressure the Bank of Japan into launching aggressive monetary easing measures to boost growth if his party win the Dec. 16 vote.
The BoJ has unveiled two policy easing measures since September.
Japan's economy contracted in the July-September quarter, nudging it toward recession and dousing hopes the nation had cemented a recovery after last year's quake-tsunami disaster, which triggered the worst atomic crisis in a generation.
However, the effectiveness of the government stimulus package has been questioned.
"While (the package) wouldn't be a poison, it wouldn't be a medicine either," Masamichi Adachi, a senior economist at J.P. Morgan Securities, told Dow Jones Newswires.
A glimmer of hope emerged Friday as official data showed Japan's factory output rose 1.8 per cent in October, the first rise in four months and beating market expectations of a 2.2-per-cent drop.
Separate figures showed the jobless rate held steady while household spending for the month was better than expected, suggesting a possible improvement in consumer confidence.
The unexpected figures – and a producers' survey that forecast a 7.5 output increase in December after a small decline for November – gave the Tokyo stock market a little boost in Friday morning trade.
The Nikkei index closed the morning 0.88 per cent higher.
But the economy ministry doused hopes that the latest economic data was something to cheer about, saying in a statement that output was on a "downward trend".
Crédit Agricole economist Kazuhiko Ogata also cautioned against any bubbly optimism, saying a sustained recovery would depend on stronger overseas demand for Japanese exports, while producers will have to bring down their built-up inventory.
"The need for adjusting accumulated inventory would weigh on production for the time being and thus a bottom-out of production would be confirmed only after the turn of the year at the earliest," Mr. Ogata said.
As the weak European market dents demand for Japanese exports, a territorial row over islands in the East China Sea claimed by Tokyo and Beijing has also affected the trade balance owing to a consumer boycott of Japanese brands.
Japan's top three auto makers – Toyota, Nissan and Honda – have reported that the row with China has dug into their sales and profits, with October data on Thursday showing the trio slashed their output in China, the world's biggest vehicle market.
Some analysts have suggested the slump in China demand may turn around in the early new year.