By Chris Oliver, MarketWatchLast update:
8:48 a.m. EDT April 10, 2009
Package designed to offset pain from global slump in exports
HONG KONG (MarketWatch) -- Japan's government formally unveiled its latest fiscal plan Friday, a package of spending and tax reductions valued at 15.4 trillion yen ($154 billion) that's intended to help rescue the economy from its biggest slump since World War II.
The package, a record for a supplemental spending bill in Japan, is the third to come to light since Prime Minister Taro Aso took office last September, about the time global financial markets unraveled.
Aso said the spending should boost, by two percentage points, growth in Japan's gross domestic product for the current fiscal year that began this month. The figure is equivalent to about 3% of Japanese GDP last year.
Earlier this week, Aso indicated the government was considering a plan that would equivalent to about 2% of GDP, or about 10 trillion yen. That would have matched the previous record for a stimulus spending package, set in 1999.
Finance Minister Kaoru Yosano told reporters on Friday the government will sell new debt worth more than 10 trillion yen to raise the money for the package.
He added that failure to ramp up stimulus spending could translate into the Japanese economy suffering a sharp contraction.
"If we sit idly, the economy would contract 6% to 7%" in the year, Yosano said.
"The day we rebuild the nation's fiscal health will get pushed further backward if we let our economy break down. To prevent a downward spiral, we need to carry out aggressive fiscal spending," he said.
Japan's debt markets can absorb the issuance without too much trouble, in Yosano's view. He added there was no need for additional support from Bank of Japan to support the bonds sale.
Default can't be ruled out, economist says
Credit Suisse economists said Friday that the stimulus package was heavily weighted toward new spending, rather than tax cuts, which would have been more effective in boosting the economy.
"We have to be more worried about the risk that Japan's public debt situation continues to get worse and in the future there is the possibility that Japan could default kind of argument," said Hiromichi Shirakawa, the bank's chief economist in Tokyo.
The additional debt issuance of 10 trillion yen will lift Japan's total new issuance in the current fiscal year to more than 40 trillion yen, an amount that would be the largest ever, according to reports.
The budget is expected to be submitted to parliament for consideration and approval by April 27.
The spending package will include 4.9 trillion yen to generate jobs, to help soften credit conditions for corporations and to potentially fund a stock-buying program.
The government also set aside 6.2 trillion yen to be used toward strategies that will boost competitiveness, such as funding consumer rebates on energy-efficient appliances and a trade-in program that would get older vehicles off the road.
About 4.3 trillion in funding will be allocated to help revive rural economies. About 100 billion yen will go toward funding tax reduction, including a provision that allows companies to write off more in personal gifts. End of Story
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.
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