ANALYST VIEW: Japan govt sets stimulus package

TOKYO (Reuters) - Following are analysts' reactions to the Japanese government's decision to approve a 7.2 trillion yen ($80.6 billion) stimulus package aimed at boosting the world's second-largest economy.

KEY POINTS

-- Including non-spending measures such as loan guarantees for small companies facing tight credit conditions, the size of the new stimulus package totals 24.4 trillion yen.

-- The government will issue new bonds worth more than 100 billion yen to fund the stimulus measures. As a result, new bond issuance for the fiscal year ending in March 2010 will total 53.4 trillion yen, up 21 percent from its initial estimate.

-- As part of the stimulus, the government will extend subsidies and incentives on low-emission cars and electronics that were set to expire early next year. It will also offer incentives for environment-friendly homes.

COMMENTARY

CHOTARO MORITA, HEAD OF JAPAN FIXED-INCOME RESEARCH, BARCLAYS CAPITAL

"The size of increase in government bond issuance was in line with expectations. It almost matched the size of a shortfall in tax revenue that has been leaked by the authorities.

"It's still unclear whether the government will also boost issuance of 'zaito' agency bonds, and that is one concern. I think the government could increase it by 1 or 2 trillion yen given an expected boost in lending to small and medium-sized companies.

"It's a little doubtful if this package is big enough to support the economy into next fiscal year when the government's fiscal restraint policy is expected to tighten its budget."

YASUNARI UENO, CHIEF MARKET ECONOMIST, MIZUHO SECURITIES

"This may help the economy somewhat, through the issue of construction bonds and extension of eco-points to the housing sector. But this does not even begin to address the more fundamental issues facing Japan, such as weaknesses in the global economy and deflation.

But then, an effort to create some kind of a safety net for small and medium size firms, by supporting employment and financing, are the most we can expect from a government whose finances are weakened to this extent.

This budget represents another cost we are pushing out to the future. The fact that this was a little smaller than what parts of the coalition were asking for is no victory for Hatoyama. The disagreements over the budget just served to show the fragility of the ruling coalition.

In the end, the budget was created from the bottom line up. What is different between the Democrats and the Liberal Democratic Party? We need to look more at the cost performance of each of these programs."

MASAMICHI ADACHI, SENIOR ECONOMIST, JP MORGAN, TOKYO

"It's much better than nothing. But we already knew this package was coming for the past couple of weeks. It was already 7.1 trillion yen and now it's 7.2 so the change is insignificant.

"Most of them (the measures) are just an extension of the current measures... The impact is definitely positive compared to being without these measures but the impact to boost demand should be limited. The only part I focus on is the introduction of eco-points for the housing sector. That will probably boost some part of housing investment. That's a positive side but other than that it looks limited.

"I don't think there will be a big impact (on markets) from this as it's already well known. The more important issue is news about the budget for next year. We still don't know what's going to happen for next fiscal year's budget. The new fiscal budget is more important in terms of seeing what the DPJ really wants to do."

KAZUHIKO SAITO, CHIEF ANALYST AT FUJITOMI CO LTD, TOKYO

"The value is largely what was expected, and it looks like Kamei has decided not to rattle matters any more and save face for Prime Minister Hatoyama.

"As it was largely within what was expected, I see little reaction to this from any of the markets.

"This clears one hurdle, but this administration still needs to resolve other problems such as the issue of the U.S. base in Okinawa."

AKIYOSHI TAKUMORI, CHIEF ECONOMIST, SUMITOMO MITSUI ASSET MANAGEMENT

"The market's fear was that the Democratic Party-led government would cause a double-dip recession through its pledged spending cuts on public works projects. But such a scenario seems to have been avoided now that the government is due to extend the eco-point program for eco-friendly home electrical appliances and start new programs for supporting small firms' financing and housing investment.

"The economy is likely to only grow modestly even with the new stimulus, but the stimulus size of 7.2 trillion yen seems to be reasonable as the government cannot afford to spend massively and worsen its fiscal conditions. Rises in government bond issuance are certain to have adverse effects on the economy.

"The biggest focus now is whether the government will be able to keep bond issuance below 50 trillion yen in the next fiscal year starting in April and whether it will be able to map out growth strategies."

KATSUHIKO NAKAMURA, DIRECTOR OF RESEARCH, ASIAN FORUM JAPAN

"The basis for the figure was political ... They had to pay heed to fiscal discipline while taking Kamei into account, without being accused of getting bogged down."

BACKGROUND

-- The government hopes the steps will help prop up an economy mired in deflation and hurt by a recent rise in the yen after having barely climbed out of the worst recession in six decades.

-- The spending was raised slightly from the government's original plan to spend 7.1 trillion yen, a move by Prime Minister Yukio Hatoyama to appease the coalition partner, led by outspoken banking minister Shizuka Kamei.

-- The government, in power for less than three months, is desperate to avoid a return to recession ahead of an election for parliament's upper house in July.

($1=89.34 Yen)

(Reporting by Tokyo Newsroom)