Japanese PM planning to tap reserves for stimulus

Reuters, TOKYO

Thu, Oct 18, 2012 - Page 15

Japan’s prime minister plans a new round of stimulus to try to revive economic growth, media reported yesterday, but at ¥1 trillion (US$12.7 billion) economists say it will be too small to have a lasting impact.

Having promised a national election “soon,” Yoshihiko Noda is under pressure to lift the world’s third-biggest economy after growth stalled in recent months, raising concerns it could slide into a recession.

Noda is expected to order his Cabinet to compile the package later in the day by raiding reserves. The government lacks the strength to push through a new spending bill in the divided parliament, so the stimulus will not involve new bond issuance.

“We still have an unstable political situation and many politicians expect an election soon, so they want something to please voters,” said Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch. “This is better than no spending. But from an annual perspective the impact is small.”

The government, which has downgraded its view of the economy for three straight months, will focus the spending on renewable energy, healthcare and agriculture, the media reports said.

The spending may also be geared to helping firms cope with the strong yen, Kyodo news agency reported.

Japanese policy making has ground to a halt since the end of the regular parliament session last month as the opposition tries to use its ability to block legislation to force an election.

Noda promised to hold a national vote “soon” in exchange for opposition support in August to pass a sales tax hike, a major step to reduce the country’s public debt burden that amounts to twice the size of the US$5 trillion economy.

Since then, Noda has been coy on the timing of the vote as public opinion polls show his Democratic Party would suffer a heavy defeat in an election.

The polls show that the public has grown frustrated with a series of missteps by the ruling party on foreign and energy policy and the recovery efforts from last year’s earthquake and nuclear disaster.

Kichikawa estimated that a stimulus package worth ¥1 trillion could add 0.2 percentage point to economic growth in the January-March quarter of next year.

Japan’s economy is forecast to grow 0.4 percent in that quarter and 1.7 percent for the full fiscal year to the end of March, a Reuters poll on Oct. 11 showed.

To fund the spending, the government will use reserves from the current fiscal year’s budget and a separate budget for earthquake reconstruction, the Yomiuri Shimbun reported, without citing its sources. The government does not need opposition votes to tap reserves.