Japan’s incoming conservative government said yesterday it would launch a huge spending package worth about US$118 billion aimed at injecting life into the nation’s limp economy.
The Liberal Democratic Party (LDP) led by incoming Japanese prime minister Shinzo Abe will ditch the current overdraft limit so it can pay for the whopping stimulus, reports said, even as ratings agencies have warned Tokyo over its spending.
“We must work out a supplementary budget urgently,” the party’s deputy head Masahiko Komura told reporters in the Japanese capital. “From a macroeconomic viewpoint, some ￥10 trillion [US$118 billion] will probably be needed.”
In his election campaign Abe vowed to boost infrastructure spending and pressure the Bank of Japan to boost its economic offensive with aggressive stimulus. The central bank ends a closely-watched two-day policy meeting today.
Japan’s economy shrank in the July to September quarter and has been sideswiped by a batch of gloomy data, with data yesterday showing last month’s trade deficit widening by nearly 38 percent year-on-year to a record for the month.
Abe’s proposed package would be half financed by a surplus from the last fiscal year and a reserve fund for covering government bond repayments, while the remainder would be paid for with newly issued debt, the Nikkei business daily reported yesterday.
The Nikkei added that the LDP, which swept to victory in national elections at the weekend, may tweak a ￥44 trillion annual spending cap approved by ousted Japanese prime minister Yoshihiko Noda, who resigned as head of the Democratic Party of Japan following Sunday’s defeat.
The cap is aimed at halving the fiscal deficit by 2015 from 2010 levels, as Tokyo struggles to balance growth while reining in its huge public spending.
The country’s total debt stands at more than twice its GDP, the worst in the industrialized world and a debt burden that has seen global agencies downgrade Japan’s credit rating.
Noda pushed through a plan to double Japan’s sales tax to 10 percent by 2015 to raise revenue, which the LDP has said it will review based on the state of the economy.
Last month Tokyo approved ￥880 billion in spending, following about ￥420 billion in emergency spending in October.
Lawmakers also passed a crucial deficit-financing bond bill last month that will allow Tokyo to pay for a huge chunk of this year’s public spending, avoiding the country’s own fiscal cliff.
The bonds were crucial to raising funds to pay for about 40 percent of government spending in the year to March.
Japan’s rapidly aging society means an increasing number of pensioners need to be supported by a dwindling workforce and a shrinking tax base.
However, most of Tokyo’s debt is held domestically, which means Japan largely avoids the kind of outside criticism that has been leveled at Greece and other European nations hammered by fiscal turmoil.