Next extra budget to top ¥2.7 trillion

Hike needed to cushion yen hit

Kyodo News

The second extra budget for fiscal 2009 will probably be bigger than the initially planned ¥2.7 trillion to help cushion the impact of the rising yen and falling stock prices on the flagging economy, Deputy Prime Minister Naoto Kan said Monday.

Amid Japan’s deteriorating fiscal position, Kan had repeatedly said the additional stimulus package for the year through March 31 would be worth ¥2.7 trillion.

But Kan, also state minister for national strategy, said Monday key Cabinet members have agreed that if necessary, the size of the extra budget should exceed the amount the Democratic Party of Japan-led government has scraped together from the first extra budget.

Separately on Monday, industry minister Masayuki Naoshima said the government will try to secure ¥1 trillion in actual spending for a government loan guarantee program worth ¥10 trillion for struggling small businesses.

Loan guarantees are often employed in an economic package to increase its size on a project basis, although actual spending by the government won’t be that much unless most borrowers go bust.

“We will carefully watch to what extent the situation in Dubai will affect other parts of the world,” Kan said, referring to the financial instability triggered by fears of debt default in the emirate that last week contributed to the yen’s sharp gains versus the dollar and the euro.

Kan suggested that the government will work closely with the Bank of Japan, saying, “We will coordinate views with relevant institutions.”

Prime Minister Yukio Hatoyama is scheduled to hold talks with BOJ Gov. Masaaki Shirakawa this week.

When the Cabinet laid out basic guidelines for the second extra budget in mid-November, it said there will be upcoming additional measures to focus on employment, incentives for purchases of environmentally friendly products and financing for small and medium-size firms.

The government is trying to put together a new stimulus package this week to finalize a draft of the supplementary budget by the end of the month.

Chief Cabinet Secretary Hirofumi Hirano said Hatoyama and Shirakawa will discuss various topics, including whether the central bank sees the need for further quantitative easing.