Japan is preparing an economic stimulus package worth $120 billion to support fragile growth, two government officials with direct knowledge of the matter said on Tuesday.

The spending would be earmarked in a supplementary budget for this fiscal year to next March and an annual budget for the coming fiscal year from April. Both budgets will be compiled later this month, the sources told Reuters, declining to be identified because the package has not been finalised.

The package would come to around 13 trillion yen ($120 billion), but that would rise to 25 trillion yen ($230 billion) when private-sector and other spending are included.

The Nikkei business daily reported on the weekend that the government was considering putting together a large-scale stimulus package with fiscal spending exceeding $92 billion.

Japan’s economic growth slumped to its weakest in a year in the third quarter as soft global demand and the Sino-US trade war hit exports, stoking fears of a recession. Some analysts also worry that a sales tax hike to 10% in October could cool private consumption which has helped cushion weak exports.

Such spending could strain Japan’s coffers - the industrial world’s heaviest public debt burden, which tops more than twice the size of its $5 trillion economy. Despite the headline size of the stimulus, actual spending would be smaller in the current fiscal year, and economists are not expecting much of a boost.

“We expect this fiscal year’s extra budget to total around 3-4 trillion yen. We should not expect it to substantially push up the GDP growth rate,” said Takuya Hoshino, senior economist at Dai-ichi Life Research Institute.

The 13 trillion yen includes more than 3 trillion yen from fiscal investment and loan programmes, as the heavily indebted government seeks to take advantage of low borrowing costs under the Bank of Japan’s negative interest rate policy.

Direct government spending is expected to reach around 7-8 trillion yen, they said.

The government will mobilise construction bonds, unused money from the previous fiscal year’s budget and fiscal investment and loan programmes to secure necessary funding, the Nikkei reported on Tuesday.

The spending package won’t involve deficit-covering bond issuance, the Nikkei added.

A final decision on the package could be made as early as Thursday.

Meanwhile, Japan’s Nikkei average dropped on Tuesday, as concerns about global trade revived after US President Donald Trump slapped tariffs on Brazil and Argentina, while weak US manufacturing data also dented sentiment.

The Nikkei share average closed down 0.64% at 23,379.81. It had fallen as much as 1.46%, to 23,186.84, but managed to end the day above its 25-day moving average of 23,249, a key technical level.

On Monday, Trump said he would impose tariffs on steel and aluminium imports from Brazil and Argentina, raising worries he could also re-escalate trade tensions with China.

“Should Trump impose the so-called fourth tariffs on China on Dec.15, it would be a completely different scenario from what most investors are expecting,” said Masayuki Kubota, chief strategist at Rakuten Securities.

Data from the US Institute for Supply Management (ISM) showed the US manufacturing sector contracted for a fourth straight month in November, hurting market optimism sparked by a strong manufacturing survey reading from China on Monday.

China banned US military ships and aircraft from visiting Hong Kong and slapped sanctions on several US non-government bodies in response to US legislation passed last week supporting protests in the Asian financial hub.

Investors have hoped that, as part of a “phase one” trade deal, Washington would avoid imposing an additional tariff of 15% on about $156 billion worth of Chinese products on Dec. 15. The broader Topix shed 0.45% to 1,706.73. A wide range of shares dropped on the main board, with decliners outnumbering gainers by a ratio of 74 to 26.

Decliners included many defensive shares. East Japan Railways fell 1.3%, Kikkoman Corp dropped 3.4% and Nisshin Group shed 2.7%.

Pigeon tumbled 13.8% after the baby goods maker slashed its annual outlook following weak quarterly results.

Astellas Pharma fell 1.1% after the pharma-maker agreed to buy Audentes Therapeutics for about $3 billion in cash, in a quest to make genetic medicines a key growth area.

Nomura Holdings briefly hit a 1-1/2-year high after Japan’s top securities brokerage firm and investment bank picked joint operations chief Kentaro Okuda to lead its turnaround.

But it failed to retain gains, ending down 0.3%.

Shares of Nintendo rose 2.7% to a 1-1/2-year high, on hopes of brisk holiday sales.

Japanese government bond (JGB) prices dropped on Tuesday, with benchmark futures falling to a 7 1/2-month low, after an auction of 10-year JGBs witnessed weak demand.

Reuters