Japan requires as much as ?10 trillion (US$84 billion) in extra spending to bolster the world's second-largest economy, ruling Liberal Democratic Party Policy Council Chairman Taro Aso said.
"To boost weak domestic demand, extra spending is needed," Aso said on Asahi Television's Sunday Project program, when asked what the government should do for the economy.
"About ?5 [trillion] to ?10 trillion would be necessary," he said. He suggested the spending should come in the fiscal year starting April 1.
Policy makers are trying to avert a fourth recession in a decade. Since 1992, the government has compiled 16 extra budgets, spending as much as ?141.3 trillion in an attempt to bolster the economy and restore steady growth.
"As soon as [parliament's] upper house passes the budget for next year, politicians will start pressing for additional spending," said Koji Shimamoto, chief strategist at BNP Paribas Securities Japan Ltd. "Extra spending itself, though, won't have that much economic effect."
The government projects public debt will reach ?685 trillion in March 2004, equaling 137.6 percent of gross domestic product. Japan's public debt is the highest in the industrialized world.
Aso was the latest politician in Prime Minister Junichiro Koizumi's party to call for an extra budget. Senior LDP officials including Makoto Koga and Shizuka Kamei have also urged extra spending plans in the next fiscal year as Japanese stocks plunge to their lowest levels in two decades.
An 80 percent plunge in the Nikkei 225 Stock Average since 1989 has eroded the capital of Japan's biggest banks, which owned ?21 trillion (US$178 billion) of shares as of last September, to near minimums needed to stay in business. The decline in capital has curbed lending, crimped growth and contributed to three recessions in a decade. On Friday the Nikkei rose 1.7 percent to 8,003.
Koizumi repeated last week that he has no intention to draw up an extra budget. In November, he broke his promise to cap this year's new bond sales at ?30 trillion in order to provide an extra ?3 trillion in spending on public works and jobs programs to breathe new life into the economy.
"I am not going to shift my policy," Koizumi said.
"Selling more bonds to put money in businesses will worsen the Japanese economy. We need to focus our spending on important areas."
Parliament's lower house earlier this month approved an ?81.8 trillion budget for the next fiscal year. The budget cuts spending on roads, bridges and dams by 3.7 percent to ?8.91 trillion.
"I doubt drafting an extra budget will be effective in boosting the economy," Yasukazu Shimizu, a senior economist at Aozora Bank Ltd, said last week. "From our experiences in the past 10 years, we have learned that putting more money into public works isn't effective."
Growth in the world's second-biggest economy slowed to 0.5 percent in the fourth quarter from a revised 0.8 percent in the third. Concerns that the US will attack Iraq are denting demand for Japanese exports and hurting consumers spending, which accounts for about 55 percent of the economy.
Politicians may try to use the need to finance costs involving a possible US invasion of Iraq to justify an extra budget package, BNP's Shimamoto said.
"They may argue that an extra budget is needed to fund the costs of post-war restoration and rehabilitation" in Iraq, Shimamoto said. "But once they legitimize the need for an extra budget, they will add in spending for public works and other items."
Taku Yamasaki, secretary general of the LDP, said on a Fuji Television program that the government needs to come up with an extra budget to help the US bear the cost of a conflict with Iraq.
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