Japan Weighs Up to 3 Trillion Yen Extra Budget to Boost Economy

Japan’s government is considering an extra budget worth as much as 3 trillion yen ($25 billion) to help the economy recover from recession, according to people involved in the discussions.

The package would pay for shopping vouchers for consumers hurt by a sales-tax increase and relief for businesses squeezed by the weaker yen, and would also fund reconstruction work in the earthquake-hit north, said one of the people, who asked not to be named because the talks were private.

Burdened by the world’s heaviest debt load, Prime Minister Shinzo Abe has little room to borrow and spend to jump start an economy that suffered its fourth recession since 2008 following April’s sales-tax hike. The government is crafting the stimulus with the aim of staying on track to reach a key budget-deficit reduction goal next fiscal year, according to another person.

A 3 trillion yen extra budget for the current fiscal year through March wouldn’t prevent the government from reducing its primary balance deficit as a proportion of economic output to half the level of fiscal 2010 in the year starting in April, a gauge of progress in improving its finances, one of the people said.

Abe last month postponed another increase in the levy by 18 months to April 2017 and called an election to seek a new mandate to cure the country’s economic ills.

The economy shrank an annualized 1.9 percent last quarter, more than initially estimated, after a 6.7 percent contraction in the three months from April, when the sales levy was raised for the first time since 1997.

Election Looms

The Cabinet Office’s “Economy Watchers” survey yesterday showed sentiment fell last month to the lowest since November 2012, a month before Abe took office and pledged to drive Japan out of two decades of malaise with his Abenomics policies.

Japan needs an economic package worth at least 4 trillion yen, Etsuro Honda, an adviser to Abe, said last week.

The absence of a strong opposition has set Abe’s Liberal Democratic Party up for another election win, with a poll by the Mainichi newspaper indicating the LDP may secure a two-thirds majority in the lower house vote on Dec. 14 without having to rely on its coalition partner, Komeito.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE