As Japan Election Looms, Speculation of Extra Budget Swirls

  • TV Asahi reports government mulling $45 billion package
  • Economy shrank in final three months of 2015; exports sliding

Even before Japanese lawmakers finish approving a record budget for the coming fiscal year, some ruling-party officials are already considering a new spending package to boost a sputtering economy ahead of a summer election, according to media reports.

QuickTake Abenomics

The government is considering taking the rare step of adding stimulus early in the fiscal year with an extra budget of about 5 trillion yen ($45 billion), TV Asahi reported, citing several unidentified ruling party officials. The television station said the spending would make it easier to raise the sales tax, as planned, to 10 percent in April next year.

Such a package would match the recommendation from Etsuro Honda, an adviser to Prime Minister Shinzo Abe, made in an interview with Bloomberg earlier this month. Adding to the signs of an additional fiscal initiative: the Nikkei newspaper reported that Toshihiro Nikai, chairman of the ruling Liberal Democratic Party’s general council, said Wednesday the government may take "aggressive" steps including fiscal spending.

Chief Cabinet Secretary Yoshihide Suga told reporters Thursday the government wasn’t considering such a package at this point, while Finance Minister Taro Aso told parliament the priority was to pass the main budget.

Dour Data

Typically, "extra" budgets aren’t assembled until late in the calendar year, and not before the regular, full-year budget for the fiscal year starting April 1 is enacted. The early discussions this time follow evidence of a contraction in the economy in the final three months of 2015, with the misery compounded by data last week that showed exports in January fell the most since 2009.

With wage gains stagnating, consumer prices barely rising and households reluctant to spend, lawmakers have an incentive to appear active in addressing challenges as they prepare for an election for the upper house of parliament in July. Financial markets have added to a sense of disappointment in the Abe administration: the benchmark Topix index has plunged about 16 percent so far in 2016 and the yen has gained against the dollar amid concerns over China’s slowdown and U.S. growth.

Japan has passed a single supplementary budget every year since fiscal 2011, when it implemented four extra spending packages to cope with the aftermath of the massive earthquake, tsunami and nuclear crisis.

The latest extra budget in Japan was a 3.5 trillion yen package, passed last month. The funds were earmarked for initiatives to tackle Japan’s demographic issues and regional revitalization, as well as cash handouts to low-income pensioners. Supplementary budgets typically don’t involve fresh deficit financing, as they use funds that went unspent in the regular budget and any extra revenues raised beyond projections.

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