Japan is considering a stimulus package of as much as 4.6 trillion yen ($54.6 billion) that will be funded with existing revenue, a government official said as policy makers seek to shore up the nation’s recovery
Prime Minister Naoto Kan’s administration will aim to avoid increasing issuance of government bonds, and pay for the package by allocating higher-than-forecast tax revenue and left over funds from the 2009 budget, the official said on condition of anonymity. Savings on debt-interest costs from a slide in bond yields will also be tapped, the person said.
The plan comes as evidence mounts of the economic damage of the yen’s climb to the highest level in 15 years, with figures today showing the smallest gain in exports this year. Economy Minister Banri Kaieda said additional liquidity injections by the Bank of Japan could be effective in influencing the yen, signaling rising pressure on the bank to do more. BOJ Governor Masaaki Shirakawa said he’s ready to act if needed.
“There’s growing concern that boosts from previous stimulus measures are fading,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “Without an additional stimulus, we’ll continue to see a recovery with little contribution from the domestic economy.”
Japan’s stocks halted a three-day slump, helped in part by U.S. economic data signaling a gain in capital spending. The Nikkei 225 Stock Average advanced 1.4 percent to 9,603.14. The yen traded at 84.21 per dollar at 5:24 p.m. in Tokyo, less than 2 percent from the 15-year high of 82.88 reached on Sept. 15.
The official didn’t say what measures will be included in the stimulus, which comes after Kan had already unveiled a 915 billion yen plan to address slowing growth. Gross domestic product expanded at a 1.5 percent annual pace last quarter, down from 5 percent in the first three months of the year.
Vice Finance Minister Mitsuru Sakurai, speaking in Tokyo today, underscored that the administration wants to avoid boosting bond sales for the extra budget; Japan is already struggling to contain the world’s largest public debt, nearing double the size of GDP. The fiscal situation is in an “emergency state,” Vice Finance Minister Fumihiko Igarashi said.
The package may use 2 trillion yen from more-than-forecast tax revenue, 1 trillion yen from savings on debt servicing, and 1.6 trillion yen from the budget for the fiscal year through March 2010, the government official said. The Nikkei newspaper reported the 4.6 trillion yen plan earlier, citing Koichiro Gemba, the head of the Democratic Party of Japan’s policy board.
With limited scope for net increases in fiscal spending, the government has pressed the central bank to step up its campaign to end deflation. Sakurai told reporters that the BOJ could expand its bond purchases beyond the current 1.8 trillion yen monthly target. He added that specific measures are up to the bank.
Shirakawa said at a press briefing after meeting with business executives in Osaka that the bank has no preconceptions about future policy steps. He noted that bond purchases are one tool with which to provide liquidity.
“We will watch how the yen’s strength is affecting the economy and if it becomes a downside risk, we will take action in a timely and appropriate manner,” Shirakawa said. The BOJ board is next scheduled to meet Oct. 4-5.
The stimulus effort comes after business leaders urged the government to widen efforts to safeguard the recovery from Japan’s deepest postwar recession. A central bank report due for release in two days may show the smallest improvement in sentiment among large manufacturers in six quarters, according to the median forecast in a Bloomberg News survey.
“They have the difficult task of improving productivity in the economy at the same time they need to take measures to control the budget deficit,” Naoyuki Shinohara, a deputy managing director at the International Monetary Fund and former Japanese vice finance minister, said in an interview in Kuala Lumpur, where he’s attending a conference.
Japan’s economic outlook is “anemic,” Nouriel Roubini, the New York University professor and economist, said at the same conference today.
The central bank has kept its benchmark interest rate at 0.1 percent this year and expanded a bank-loan program by 20 trillion yen to a total of 30 trillion yen.
The BOJ may revise down its economic assessment when it releases its latest outlook on Oct. 28, and a further loosening of credit could be announced then, said Takehiro Sato, Japan chief economist at Morgan Stanley MUFG Securities Co. in Tokyo.
Kan’s move to add to his previous stimulus may be a tack to heal divisions in the ruling party exposed by this month’s leadership battle. Kan defeated rival Ichiro Ozawa, who advocated a larger aid package and publicly called for selling the yen, which the administration did the day after the Sept. 14 party vote.
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