Business

Wednesday November 18, 2009

Japanese govt plans extra stimulus budget


But worried cabinet ministers give few clues to its size

TOKYO: Japan’s government said it plans an extra stimulus budget but cabinet ministers gave few clues to its size as they weigh increasing alarm among investors worried about a blow-out in bond issuance with the need to boost the economy.

Finance Minister Hirohisa Fujii also said the recently elected government would review election spending promises as it tried to keep new bond issuance below 44 trillion yen (US$494bil) for the fiscal year starting April 1 next year.

The Democrat-led government, which took office in mid-September, is caught between a rock and a hard place in its economic management.

Bond yields have risen this month as investors become increasingly worried about a surge in issuance as tax revenues slide. But, at the same time, government stimulus is driving economic growth so a cut in state spending could send the economy back into recession amid talk of a renewed risk of deflation.

“It is important to have an extra budget to prevent the economy from falling into a double-dip recession,” National Strategy Minister Naoto Kan told reporters. “All cabinet members are worried about maintaining the balance between economic stimulus and fiscal discipline.”

The National Strategy Bureau, which Kan heads, will take the lead in crafting the extra budget for the current fiscal year, with measures to be compiled by the end of November, as well as next year’s budget.

The extra budget would focus on measures to promote jobs creation for the poor, reduce healthcare costs for the elderly and possibly extend subsidies on energy-efficient cars and electronics that the previous government enacted, Kan said.

The government can reallocate 2.7 trillion yen it suspended from a budget compiled by the previous government, which is not likely to lead to an increase in bond issuance before the end of the fiscal year. But some cabinet ministers want to spend more, and that could fan concerns that bond issuance will spiral out of control.

Fitch Ratings warned last week that the agency would review its AA-minus rating on Japanese government bonds if debt issuance next year rose much above this fiscal year’s 44 trillion yen.

“I told other ministers my personal opinion is that recklessly issuing government bonds would cause problems, so I want them to keep in mind this issue when the government compiles the budget,” Fujii told reporters after a cabinet meeting. “I’m aiming to reduce the amount of JGB issuance from 44 trillion yen decided by the previous government.”

But some analysts say this would be a tall order for the Democrats as they face a national election next summer amid expectations that the economy, which grew a solid 1.2% in the third quarter, could show slower growth next year.

“They face a lot of pressure from their electorate to keep their spending, to maintain their spending. That’s just the reality of democracy,” said Adrian Foster, head of financial markets research for Asia-Pacific at Rabobank in Hong Kong.

“I guess the one avenue they can realise their ambition is if of course the economy does grow quite strongly. And if economy is quite strong, then government revenue would be quite strong and that would fund a lot of the spending they are talking about,” Foster said. — Reuters


For Another perspective from The Daily Yomiuri, a partner of Asia News Network, click here


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