Aso Sketches How Japan Will Front-Load Budget Spending This Year

  • Aims to contract 80 percent of public works by end-Sept.
  • There is a risk of negative impact on later spending

Japanese Finance Minister Taro Aso.

Photographer: Kazuhiro Nogi/AFP via Getty Images

Japanese Finance Minister Taro Aso began outlining how the government will bring forward spending in the current budget to the first half of the year as the Abe administration seeks to bolster an economy that’s struggling to recover from a slump at the end of 2015.

"We aim to sign contracts on about 80 percent of the 12.1 trillion yen ($110 billion) in public works in the budget in the first half of the fiscal year," Aso said Tuesday. The government also urged ministries to spend the money from last year’s extra budget as quickly as possible, Aso said.

The move to stimulate spending comes as Japanese companies confidence slumped to a near three-year low in March, suggesting business investment and wage growth will remain tepid, especially as the strengthening yen cuts into profits. It is unclear how much of the spending will actually happen in the next six months and what economic impact it will have.

“Front-loading some public works will probably have some effect," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. Bringing forward the contracts may mean there’s a drop in construction activity next fiscal year, he said, adding that “there’s a high chance that the government will compile an extra budget, including public works spending.”

"The fundamental problem for Japan is a decline in potential growth rate,” said Kodama. “Unless Japan tackles this problem, the effects of whatever measures the government takes may be limited.”

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