World Economy

Japan Plans $90b Stimulus

Japan Plans $90b StimulusJapan Plans $90b Stimulus

Japan’s government is planning to present a second supplementary budget of between $45.3 billion and $90.7 billion for this fiscal year, an official said on Saturday.

The government is expected to present the budget in a special legislative session after Upper House elections in the summer, according to the local news agency Kyodo.

The new supplementary budget will be used to fund more public work projects and will be the second such budget for the present fiscal year after the approval of a $7 billion budget to finance reconstruction of areas in southwestern Japan affected by the mid-April earthquakes.

Prime Minister Shinzo Abe had raised the idea of another supplementary budget following discussions with G7 leaders during a two-day summit at Ise-Shima National Park which ended Friday.

At the summit, Abe said the current economic outlook is similar to the global financial scenario after the bankruptcy of investment bank Lehman Brothers in 2008, and expressed concern about the weakness of global demand and domestic consumption, the main engines of the world’s third largest economy.

“When you want to get the economy going, as long as demand in Asia is weak, you need additional public spending,” Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo, told Bloomberg by phone. “Since private spending is still not picking up, the government is simply taking up the slack.”

  Tax Hike

Abe said he will consider postponing the consumption tax hike currently planned for next April to reduce the risk of what he calls a looming financial crisis due to deteriorating conditions of certain emerging economies, including China.

Abe, speaking during the concluding news conference for the Group of Seven summit at Kashikojima in the city of Shima, Mie Prefecture, hastened to add that he has not made a decision yet.

But domestic media outlets are reporting that Abe now intends to formally announce the postponement as early as Wednesday, ahead of the Upper House election scheduled for July.

“What should Japan do on its own (to address this looming ‘crisis’)? I will consider whether the consumption tax should be raised or not, and make my decision clear by the Upper House election this summer,” Abe said.

The increase, to 10% from the current 8%, was originally scheduled for last October.

Abe postponed the hike in November 2014 and subsequently dissolved the Lower House for a snap election that his Liberal Democratic Party won in a landslide. Speculation is rife Abe will repeat the maneuver this time as well.

A law is in place that obliges the government to raise the tax as scheduled in April unless there is major economic turmoil on the scale of the “Lehman shock” that rocked the world in late 2008 or a major natural disaster.

A postponement would likely help Abe’s ruling coalition win more seats in the Upper House campaign. On the other hand it would also further delay efforts to curb the government’s snowballing debt, when Japan will have to drastically increase social security spending amid the graying of the population.

Economists and business leaders have been split over whether to go ahead with the increase or not.

  CPI Falls

Japan’s core consumer prices fell for a second straight month in April, dealing another blow to Tokyo’s faltering war on deflation, data showed on Friday.

The negative reading of minus 0.3% offered fresh evidence of the challenges faced by the government and the Bank of Japan in their bid to revitalize the world’s number three economy.

The weak data raised pressure on the BoJ to expand its vast monetary easing program possibly at its next policy meeting in June, analysts said.

“Japan’s inflation is going to remain weak,” Credit Suisse economist Takashi Shiono said, according to Bloomberg News.

“If you look at economic and price fundamentals, the BoJ has to ease further soon.”

The Internal Affairs Ministry announced early Friday morning that core consumer prices, which exclude volatile fresh food prices, dropped 0.3% in April, on the heels of a similar drop the previous month.