Japan Adds Stimulus Amid Threat of Bond-Sale Disruption
Japan announced 750 billion yen ($9.4 billion) of fiscal stimulus to shore up growth as bond investors told the government they’re worried about delays in financing more spending.
With lawmakers in the Diet blocking financing legislation, some of the extra money will come from discretionary budget funds, the government said in Tokyo today. The Finance Ministry said the impasse may affect a debt sale planned for December, after an emergency meeting with primary bond dealers.
Finance Minister Koriki Jojima said last week that the government will run out of money by the end of November if the financing bill is not passed. The yen touched a four-month low today as a report showed consumer prices slid for a fifth month in September and as a Bloomberg News survey indicated the Bank of Japan (8301) may expand an asset-purchase program by 10 trillion yen on Oct. 30.
“The risk of a Japanese fiscal cliff is quite big,” said Soichi Okuda, chief economist at Sumitomo Shoji Research Institute in Tokyo. “Without the passage of the bill, the government can’t pay for necessary spending and the implementation of the budget will be delayed.”
The yen touched 80.38 per dollar on prospects for easing before trading at 79.99 as of 6:21 p.m. in Tokyo. The MSCI Asia Pacific Index (MXAP) fell 1.1 percent while the Nikkei 225 Stock Average closed down 1.4 percent.
Jojima attended today’s meeting between officials and bond market participants, saying he was the first finance chief to do so since 2004, as opposition lawmakers block a bill allowing the government to borrow 38.3 trillion yen for this year’s deficit amid a dispute over the timing of an election.
“Some market participants asked for a meeting with us out of concern that a further delay of the bill passage would affect the bond market significantly,” Jojima said, adding he wants to swiftly pass the bill in an extraordinary Diet session that begins next week.
The legislation needs to be approved by the end of November for the ministry to hold debt auctions as planned on Dec. 4, the Finance Ministry said today.
“The attending dealers expressed concern that a failure of the bill passage may break investor confidence in the stable issuance of government bonds,” Takafumi Yamawaki, chief rates strategist in Tokyo at JPMorgan Chase & Co., said after attending the meeting. “Should the delay in passage last longer, we cannot rule out the possibility that yields will rise.”
The benchmark 10-year bond was down 1 1/2 basis point at 0.765 percent as of 6:06 p.m. in Tokyo.
Today’s stimulus taps discretionary funds in this fiscal year’s budget to cover 400 billion yen in spending, with the rest coming from local governments and the effect of subsidies for energy-efficient technology, the government said.
‘‘Japan needs bigger stimulus as the economy is slowing faster than expected, but it will be hard to have larger spending due to political gridlock and worsening fiscal conditions,” said Yoshimasa Maruyama, chief economist at Itochu Corp. (8001) in Tokyo. “Political pressure will build on the BOJ.”
The central bank will consider downgrading its economic assessment at its Oct. 30 meeting, according to people familiar with the matter, who asked not to be identified because their talks were private.
Economy Minister Seiji Maehara told reporters that today’s measures would boost gross domestic product by 0.1 percentage point, without specifying over what period. The government hasn’t decided on how to fund further planned stimulus steps to be drawn up in November, Maehara said, adding that it is too early to say how big those extra measures will be.
Japan’s consumer prices excluding fresh food declined 0.1 percent from a year earlier, the statistics bureau reported in Tokyo today. The central bank will release its semi-annual outlook report on prices and growth at a meeting on Oct. 30 and may predict it will miss its 1 percent inflation goal in the next two fiscal years, according to people familiar with the matter.
Japan has the highest debt load among developed nations and an economy at risk of contracting. The government this month downgraded its economic assessment for a third month, the longest streak since the 2009 global recession. Nintendo Co. (7974) has cut its full-year profit and sales forecasts.
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