Aso Says Can't Rule Out Extra Spending to Support Japan Economy

Japanese Finance Minister Taro Aso refused to rule out the possibility an extra budget will be needed again next year to support the economy, while saying it’s best if the funds aren’t needed.

“My honest feeling is that it would be best if we don’t have to do it, but I won’t say there’s no possibility,” Aso said in an interview with public broadcaster NHK that ran today. “We can’t say whether we can avoid it until we see figures from the July-September period.”

Extra spending next year would risk expanding Japan’s public debt, which is the world’s heaviest at more than twice the size of annual economic output. The government unveiled this month a record budget plan for the year starting April 1, when a sales tax increase is forecast by analysts to cause the economy to shrink in the second quarter.

“The sales tax hike will have a sizable harmful effect on the economy,” said Yasuhide Yajima, the chief economist in Tokyo at NLI Research Institute. For Prime Minister Shinzo Abe, “it’s vital to keep expectations buoyant. He can’t afford to just deliver negative news to the public while trying to end deflation.”

Government ministers and the ruling coalition compiled the 95.88 trillion yen ($911 billion) budget proposal for next fiscal year on Dec. 21. Japan’s public debt has ballooned to more than 1 quadrillion yen and is expected by the International Monetary Fund to grow to the equivalent of 244 percent of gross domestic product in 2013.

Japan’s economy will contract an annualized 3.9 percent in the three months after the consumption tax rate increases to 8 percent from 5 percent on April 1, according to the median estimate of economists surveyed by Bloomberg News. GDP will probably grow 1.8 percent in the following quarter, and expand 1.6 percent for all of 2014, the polls show.

Ending Deflation

Prime Minister Abe said the government will decide whether to further boost the sales tax as planned to 10 percent in 2015 after studying July-September economic data. He came to power last December pledging to use stimulus measures to overcome 15 years of consumer price declines that have weighed on the world’s third-largest economy.

“We haven’t yet ended deflation, and if we lose this chance, we might not be able to for the next 20 years,” Abe said in an interview with Radio Nippon broadcast today and recorded on Dec. 24. “If that happens, we wouldn’t be able to restore Japan’s fiscal health.”

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