TOKYO — Japan unleashed yet another barrage of stimulus at its stagnant economy on Friday as debate over how to revive growth heated up ahead of a general election widely expected to deal a severe blow to the ruling Democratic Party.
Fresh data for October showed an uptick in industrial output from the month before, the first increase in four months, but little else in the way of encouragement.
The opposition Liberal Democratic Party, which is pushing for more aggressive action to spur growth, is widely expected to make major gains in a Dec. 16 general election.
The latest stimulus package approved by the Japanese Cabinet, totaling 880.3 billion yen ($10.7 billion), is earmarked mainly for spending on social programs, employment creation and support for small and medium-size enterprises. It is expected to add 0.2 percent to Japan's economic growth rate and to help create about 80,000 jobs, the Cabinet said.
The total size is not enough to really boost GDP, especially for early next year," said Junko Nishioka, an economist at RBS Japan Securities. "It is not enough to change the mood of business activity."
The economy shrank an annualized 3.5 percent in July-September, and many economists say they expect a further contraction in the current quarter, which would land Japan in its fifth recession in 15 years.
LDP leader Shinzo Abe contends much stronger action is needed to help pull the economy out of the doldrums and has urged that the central bank move more aggressively to end deflation, which has hindered growth for much of the past two decades.
Abe and Prime Minister Yoshihiko Noda were due to face off later Friday in a policy debate. Even if Noda's party does lose its parliamentary majority in the election, the LDP would likely have to forge a coalition in order to take power.
Both parties have pushed the Bank of Japan for stronger action to boost growth, with Abe urging that the central bank be held responsible for meeting an inflation target of at least 2 percent. Such calls worry many in Japan who fear the LDP might undermine the central bank's autonomy and further erode the country's already weakening fiscal health.
Industrial output rose 1.8 percent in October from September, though it fell 4.3 percent from a year earlier. Consumer prices were flat at 0 percent, but that was an improvement over the previous month's minus 0.1 percent.
Still, the better-than-expected industrial production data suggest the downturn could be bottoming out late this year, helped by a stronger U.S. economy, said Nishioka of RBS Japan.
"The main driver of the recovery is overseas demand, though there is still a downside risk from China," she said.
October brought no improvement in labor conditions, with unemployment unchanged at 4.2 percent and the ratio of jobs available falling to 80 per 100 jobseekers from 81 the month before.
Tensions over a territorial dispute with China have bitten into exports that already were limping due to weak global growth and the prolonged strength of the Japanese yen against other currencies, which makes them relatively expensive in overseas markets.
Meanwhile, the consumer demand that is a major driver of growth has remained anemic: Retail sales fell 1.2 percent in October from a year earlier, the government reported Thursday. A slight improvement in seasonally adjusted terms was mainly due to rising prices for food and energy, thanks to rising electricity rates and gas prices.
Weak spending on cars and consumer appliances suggests consumer sentiment is weakening due to worries over job prospects, Capital Economics said in a research note. It argued in favor of longer-term structural reforms to nurture growth, given Japan's massive government debt, which is more than twice the country's gross domestic product.
"Although this is an age-old tactic for winning votes, we think it won't do Japan any favors in the medium term," it said. Growth is becoming increasingly reliant on government support. Further stimulus could reduce the private sector's ability to pick up the slack in the future."
To finance the stimulus package, the government is dipping into its reserve fund. The government released a smaller package of 422.6 billion yen ($5.1 billion) in October in an effort to stave off recession.