Abe Seen Spending 12 Trillion Yen to Boost Japan’s Economy

The Japanese government will announce around 12 trillion yen ($136 billion) in fiscal stimulus measures to boost the nation’s shrinking economy, Japanese media reported today.

The Yomiuri newspaper and Kyodo News both reported the figure for extra spending in the fiscal year through March, with the Yomiuri saying that 5-6 trillion yen will be directed to public works projects, without citing anyone. Prime Minister Shinzo Abe told business leaders today that he hopes to compile the measures this week.

The spending may help to accelerate a recovery from recession as Abe pledges to boost growth and end deflation in the world’s third-largest economy. While Japan’s public debt is more than twice gross domestic product, Finance Minister Taro Aso said last week that the government doesn’t need to adhere to a 44 trillion-yen cap on new bond issuance in this fiscal year.

“The scale of this budget suggests that Abe’s new administration is serious about stimulating the economy,” said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo and a former central bank official. “It’ll be very helpful in the near-time, but the problem in the medium-to-long term is that we have to pay this back.”

The yield on benchmark 10-year Japanese government bonds rose half a basis point to 0.84 percent today, the highest since Aug. 21, while the 30-year yield rose to 2.0 percent, a thirteen-month high.

Increasing Debt

A 12 trillion yen extra budget would require about 8-9 trillion in extra bond issuance, Chotaro Morita, chief strategist for fixed income at Barclays Plc in Tokyo, said in an emailed research note today.

Vice Finance Minister Yuko Obuchi told reporters today that the government would need to sell deficit-financing bonds to pay for the extra budget.

The Finance Ministry will offer loans worth 100 billion yen to help companies develop new technologies, with firms contributing an additional 50 billion yen to the program, according to a ministry draft proposal obtained by Bloomberg News.

The ministry will also contribute around 70 billion yen to a fund to help finance firms’ overseas mergers and acquisitions, according to the draft. The money will be disbursed through the Japan Bank for International Cooperation, with the total size of the fund at 200 billion yen.

Japan’s gross domestic product shrank at an annualized 3.5 percent pace in the third quarter after contracting in the three months through June, meeting the textbook definition of a recession. The median estimate of analysts surveyed by Bloomberg News is for a further 0.5 percent fall in the three months through December.

More than 4 trillion yen would be allocated for public works and the extra budget will also allocate around 2.6 trillion yen to fund pension payments, Kyodo News reported today without saying where it obtained the information.

Aso said last month that ministries should submit spending requests for the extra budget by today.

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