Japanese Economy Minister Seiji Maehara said the country needs more monetary easing and policy efforts to encourage growth as the government prepares for election against an opposition that has stronger public support.
The government plans to inject about 200 billion yen ($2.5 billion) into the economy, Maehara said yesterday on a Fuji Television program, without giving details on the source of those funds. Spending this fiscal year includes 910 billion yen of stimulus programs requiring parliament’s approval, 400 billion yen for earthquake recovery and a further 347.8 billion yen, he said.
“There are fiscal-easing moves worldwide, but on a monetary basis Japan is falling short,” Maehara said. While “easing is not a panacea,” without that and policy moves “Japan’s sovereign credit rating may face a downgrade.”
The government on Oct. 12 issued a downgraded assessment of Japan’s economy for a third month, the longest streak since the 2009 global recession, as gains in the yen and slowing overseas demand hurt exporters. Prime Minister Yoshihiko Noda, who last week ordered his Cabinet to draw up economic stimulus measures by November, failed to reach agreement with the two largest opposition parties on passing legislation needed to fund spending amid a standoff over the timing of a general election.
Noda’s stimulus plans boost the odds that the Bank of Japan will increase asset purchases when it meets on Oct. 30 to present its semi-annual Outlook, said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo and a former central bank official.
“Continued pressure on the BOJ to ease further” is a “certainty,” Adachi said in a report. The central bank will probably add 10 trillion yen of government debt to its asset purchases, and may also include an increase in equities, he said.
Noda met on Oct. 19 with Liberal Democratic Party leader Shinzo Abe and New Komeito head Natsuo Yamaguchi. The two parties supported legislation passed in August doubling the 5 percent sales tax in return for Noda’s pledge to call elections “soon,” and are blocking authorization of deficit-financing bonds until the prime minister follows through.
“It seems to me that ‘soon’ doesn’t mean next year,” Maehara said, suggesting that Noda may call the election as early as this year. “Prime Minister Noda is a person who honors his promises.”
Noda is Japan’s sixth prime minister since 2006, and the third for the Democratic Party of Japan since it defeated the Liberal Democratic Party in 2009 after the LDP’s half-century domination of government.
He has been unable to reverse more than a decade of deflation and his biggest legislative achievement was a sales tax increase that risks damping consumption.
Noda’s approval rating was 34 percent in a Yomiuri newspaper poll published Oct. 3, down from 65 percent when he took office 13 months ago. Support for his DPJ was at 18 percent, against 28 percent for the LDP. Almost 45 percent had no party preference. Noda isn’t legally obliged to dissolve the lower house of parliament and call an election until August 2013.
Bank of Japan Governor Masaaki Shirakawa’s board held off from easing monetary policy at a two-day meeting ended Oct. 5 even as it downgraded its assessment of the economy.
The BOJ has room to ease more, IMF Deputy Managing Director Naoyuki Shinohara said Oct. 9, adding to calls from lawmakers for additional action by the central bank. Maehara said this month that buying foreign bonds is an option for monetary stimulus.
Noda pledged to defeat deflation within one year in his successful campaign to be re-elected as party leader last month. Japan’s consumer prices excluding fresh food slid 0.3 percent from a year earlier in August. The so-called core inflation rate hasn’t been above 1 percent for more than a year since 1993.
The BOJ board will update its forecasts for prices and growth on Oct. 30. It now projects core consumer prices will rise 0.7 percent in the year starting April 2013.
Also weighing on Japan’s economic recovery is the yen trading about 5 percent from its post-World War II low of 75.35 against the dollar. The currency traded at 79.32 on Oct. 19 in Tokyo. A stronger yen makes Japanese products costlier overseas, reducing the competitiveness of domestic exporters.
The Nikkei 225 Stock Average is down 12 percent from this year’s high in March. Exports are sinking, a boost from car purchase subsidies is fading, and strength in the yen is hitting producers. Large manufacturers became more pessimistic last quarter, a BOJ report showed Oct. 1.