Japan's ruling bloc seeks US$92b fiscal package to boost growth

Japan's ruling coalition lawmakers have called for an extra budget that would include US$92 billion in spending to support slowing growth, party officials said, raising worries about straining public finances.

The agreement, made in a meeting between senior officials of Japan's ruling coalition on Wednesday, highlights the concern among lawmakers about the economic outlook thanks to a sales tax hike in October and slowing global demand.

“Prime Minister (Shinzo) Abe told us to compile a sizable package to take all possible steps on the economy,” Economy Minister Yasutoshi Nishimura said at a news conference.

“We want to craft a strong economic package, taking into account the economic situation, global economy and damage caused by typhoons, which were larger than last year, so as to get the economy on a solid growth path.”

However, analysts have doubts about Abe's ability to spend such a large amount given Japan's government debt, which is twice the size of its US$5 trillion economy and the industrial world's heaviest public debt burden.

Additionally, major infrastructure spending programs could still face serious execution risks given the country's tightest labor market in decades amid a rapidly aging population.

“Even if the government secured a budget for big public works, it would be difficult to implement it smoothly,” said Kiichi Murashima, economist at Citigroup Global Markets Japan.

“Chances are low for the government to compile a supplementary budget worth 10 trillion yen (US$92.19 billion). We expect the size of this fiscal year's extra budget to fall short of 5 trillion yen.”

The government will compile a supplementary budget for the current fiscal year ending March 2020, as well as next fiscal year's budget plan in December, allowing funds to be disbursed over a 15-month period, sources said.

Both budget drafts need parliamentary approval to take effect.

Supplementary budgets of more than 10 trillion yen have only been compiled four times in the past, including one after a devastating earthquake and tsunami hit Japan in 2011.

The ruling bloc's requests focus on spending for disaster relief from a string of typhoons that struck Japan earlier this year and funding to help farmers cope with fallout from a US-Japan trade deal that opens some markets to US goods, the Nikkei business daily reported on Thursday.

Earlier this month, Abe ordered his cabinet to compile a package of stimulus measures to cope with external risks and large natural disasters, and support the economy after the 2020 Tokyo Olympics.

“We need a huge supplementary budget sized at least around 10 trillion yen,” Abe's Liberal Democratic Party's (LDP) heavyweight Toshihiro Nikai told reporters earlier this week.