Prime Minister Yasuo Fukuda has ordered ministers to develop a policy to soften the blow of higher oil prices on consumers and businesses.
"This emergency policy aims to help small and midsize companies as well as Japanese consumers," economic and fiscal policy minister Hiroko Ota told reporters Tuesday. Corporate profits dropped for the first time in five years last quarter as energy costs surged, the Finance Ministry said Monday. Fukuda is trying to extend an economic expansion that's losing steam while also cutting spending to erase the deficit and reduce the world's largest public debt.
"This could be a double-edged sword for Fukuda," said Yasukazu Shimizu, senior market economist at Mizuho Securities Co. "It'll ease damage among small and midsize companies, increasing his popularity, but more spending is dangerous for Japan's heavily in-the-red budget."
Chief Cabinet Secretary Nobutaka Machimura said the package might include financial support for transport operators and construction companies, as well as smaller businesses that have difficulty passing rising oil costs on to consumers.
Machimura said Monday that any help to ease the oil burden could be funded as part of an extra budget for the fiscal year ending in March. Ota said the source of funding for the assistance hasn't been decided yet.
Bank of Japan Gov. Toshihiko Fukui said last month that rising oil prices are "squeezing profits of small companies."
Companies with capital of ¥100 million or less account for almost half of all corporate revenue in Japan. Crude oil rose above $99 a barrel for the first time Nov. 21.
The LDP's energy task force last week proposed that the government should give small companies a grace period for the repayment of debts owed to government-run lenders.