By KYOKO SHIMODOI and JASON CLENFIELD Prime Minister Yasuo Fukuda, under pressure to increase government spending before the next election, may scuttle plans to balance the budget and cut the world's largest public debt.
Some members of Fukuda's Liberal Democratic Party, reeling from the worst election setback since 1993, are pushing plans to channel more money to rural and elderly voters. Fukuda, who took office last month, is facing calls for an early ballot after the opposition won control of the Upper House in July.
"They've made a lot of promises, but they haven't said how they are going to pay for it," said Kirby Daley, a strategist at Societe Generale SA's Fimat unit in Hong Kong. "The outlook for Japan doesn't look good, politically, fiscally or for economic growth."