Senior members of the ruling Liberal Democratic Party on Sunday butted heads over the size of a supplementary budget it is urging Prime Minister Junichiro Koizumi to compile to support Japan’s sagging economy.

LDP Secretary General Taku Yamasaki, appearing in a debate show on NHK TV, said the extra budget should be compiled within Koizumi’s 30 trillion yen annual cap on issuance of government bonds.

“Although the 30 trillion yen limit is to be applied beginning in fiscal 2002, we should respect it from this year,” Yamasaki said. That move would limit the government to only 1.7 trillion yen worth of bonds for the rest of the current fiscal year through March 2002.

Yamasaki said the main part of the extra budget will be used to deal with the persistently high level of unemployment.

However, he ruled out an idea to extend the period during which workers can receive unemployment benefits after losing their jobs, saying that such a measure could “damage the morale of the entire Japanese work force.”

On the other hand, former LDP policy chief Shizuka Kamei, appearing on a Fuji TV program Sunday morning, pressed the government to compile an extra budget of more than 30 trillion yen.

Kamei, known as a strong advocate of fiscal spending and huge public works budgets as economic stimulus, said the government should act “boldly” in formulating the fiscal 2001 extra budget.

“I would say even 30 trillion yen is a conservative figure” for the supplementary budget, he said.

Kamei also warned against rushing to implement structural reforms proposed by Koizumi, saying drastic reform is necessary but should not be carried out when the economy is still feeble. He said such issues must be debated within the government and the ruling coalition, criticizing Koizumi for labeling opponents to reform as the “resistance force.” The outspoken lawmaker has been left out of the mainstream of the party’s decision making since he lost in the LDP presidential race in April.

The tug of war between Koizumi, who calls for fiscal restraint as part of his structural reform efforts, and LDP lawmakers who advocate aggressive spending to shore up the economy is expected to intensify as government data shows an increasingly dismal picture of the economy.

Inflation opposition

Deputy Bank of Japan Gov. Sakuya Fujiwara said Sunday the central bank opposes an idea to set a specific inflation target as a means to combat deflation.

“The BOJ, entrusted with the important task of steering the national economy, cannot lend itself to undertaking such an experiment,” Fujiwara said in a morning TV program.

Fujiwara’s comments were in response to calls by some ruling Liberal Democratic Party members for the BOJ to commit to a certain inflation rate and take all available steps to achieve it.

The deputy governor said the BOJ will try to combat deflation by fully implementing its quantitative monetary easing policy adopted in March.

The debate over inflation targeting as a viable option for the Japanese economy has been intensifying among the government, business leaders, LDP officials and the central bank.

Some LDP members have urged the BOJ to set an inflation target of 2 percent to 3 percent.

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