June 10 (Bloomberg) -- Japan’s next reconstruction package should be “at least” 10 trillion yen ($125 billion) and the nation’s central bank ought to step up stimulus, a potential candidate to succeed Prime Minister Naoto Kan said.
The next spending package will be on “a considerably big scale” because Japan needs to end deflation as well as rebuild from the record March earthquake and tsunami, Seiji Maehara, 49, said in an interview yesterday in Tokyo. Maehara, a former head of the ruling Democratic Party of Japan, declined to rule himself out of a contest to replace Kan, who has pledged to resign once the post-disaster crisis is contained.
The proposals would add stimulus to an economy showing signs of heading for a second-half recovery from the March disaster, which shut factories across the nation, hampering global trade and production lines. Maehara’s view on the Bank of Japan, which he said “can expand its balance sheet a little more,” echoes that of the International Monetary Fund, which this week suggested an increase in BOJ asset purchases.
“Fading power and supply chain disruptions alongside reconstruction demand will feed into a real gross domestic product recovery,” Cameron Umetsu, senior economist at UBS AG in Tokyo, wrote in a note to clients yesterday. At the same time, “the failure to quickly agree on a much-needed second supplementary budget to finance reconstruction does not inspire confidence in the ability of the politicians to resolve other key issues,” such as energy policy and trade talks, he said.
To speed up reconstruction efforts, Maehara said a coalition government between the DPJ and the main opposition Liberal Democratic Party should be formed for a “maximum” of one year. LDP chief Sadakazu Tanigaki said on June 7 his party can consider such an alliance only once Kan steps down.
Kan should work to win the support of opposition parties for legislation allowing the government to sell deficit-financing bonds before he resigns, said Maehara, a former foreign minister.
The prime minister and Tanigaki should negotiate to ensure the passage of the bill to fund nearly half of this year’s 92.4 trillion yen budget before planning for the second disaster relief, which will be “at least” 10 trillion yen, he said.
“We must reach an agreement with the opposition parties to secure funding for additional relief packages,” Maehara said. “Mr. Kan should directly negotiate with Mr. Tanigaki as soon as possible to show leadership for the last time.”
Kan’s handling of the disaster drew public censure and prompted last week’s no-confidence vote that was defeated only after he pledged to rebels in his Democratic Party of Japan that he would resign at an unspecified date. Opposition lawmakers have refused to cooperate on disaster relief until he quits, threatening to delay a second reconstruction spending bill. Maehara said the possibility that he’ll run to replace Kan is “totally a blank slate.”
“He’s certainly one of the top three candidates,” Tomoaki Iwai, a political science professor at Nihon University in Tokyo, said in a phone interview. Finance Minister Yoshihiko Noda and Deputy Chief Cabinet Secretary Yoshito Sengoku are also likely to run, Iwai said.
Voters believe Maehara is the most suitable candidate to replace Kan, according to a Yomiuri newspaper poll published June 6. Maehara was favored by 14 percent of the respondents, followed by Chief Cabinet Secretary Yukio Edano and DPJ Secretary-General Katsuya Okada, both with 9 percent. The paper polled 1,057 people and provided no margin of error.
Hit to Economy
Japan’s economy shrank in the six months through March and is projected to contract again in the second quarter of 2011. The government is now implementing an initial 4 trillion yen extra budget to clean up from the March disaster, which is estimated to have caused as much as 25 trillion yen in economic damage.
The Bank of Japan has refrained from additional measures to boost growth since increasing its asset-purchase program by 5 trillion yen three days after the March 11 earthquake.
Maehara stepped down as foreign minister over a questionable donation five days before the March 11 quake and tsunami devastated the northeast and crippled an atomic power plant. He also served as transportation minister, overseeing a turnaround plan for Japan Airlines Corp. and leading the push to sell high-speed rail technology to the U.S.
Maehara said Tokyo Electric Power Co., operator of the crippled Fukushima Dai-Ichi nuclear plant, “cannot be legally liquidated” because the utility has a regional monopoly and is the sole provider of electricity. He said the economic consequences must also be considered in debating whether to put the utility under bankruptcy protection, a process that Japan Air went through last year.
Maehara is a graduate of Kyoto University where he majored in international politics and was first elected to parliament in 1991 as a member of a now-defunct party. He joined the DPJ when it was formed in 1998. He likes taking photos of steam locomotives, according to his website, some of which are displayed in his office.
Maehara quit as foreign minister on March 6 after admitting he received 250,000 yen from a South Korean woman living in Japan in violation of campaign financing laws which bar contributions by foreign nationals. Thousands of ethnic Koreans who have lived in Japan their entire lives do not hold Japanese citizenship.
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