Economists on Tuesday welcomed Prime Minister Taro Aso’s bid to pass an extra budget, and called on the government to act quickly to hammer out and implement additional stimulus measures.
Koichi Haji, chief economist at NLI Research Institute in Tokyo, said the new stimulus steps are necessary in the face of further economic contraction, which perhaps will reach double digits in the January-March period.
“It’s obvious the economy will deteriorate further if the government only implements the initial budget (for fiscal 2009). We definitely need additional fiscal expenditures,” Haji said, adding the government should postpone fiscal rehabilitation to focus on economic recovery.
The International Monetary Fund has lowered its 2009 outlook for real economic growth in Japan to minus 5.8 percent from an estimated minus 2.6 percent in late January.
Citing the outlook, Kazuhiko Yano, senior economist at Mizuho Research Institute Ltd., echoed Haji’s call for more stimulus steps.
“We are now facing an extremely serious downturn,” Yano said. “It is extremely important to compile additional measures now and immediately move on them.”
Although Aso did not specify the scale of the additional measures, his willingness to issue deficit-covering bonds was a clear departure from the long-standing austerity policies of his predecessors.
According to Yano, approximately ¥15 trillion in fiscal spending would be enough to help prop up the economy without damaging the market through massive national bond issuances.
He said measures should be selected on the basis of how quickly they will create jobs and demand, and benefit industries.
Yano pointed to such areas as production of environmentally friendly cars and use of solar panels. He also suggested focusing on making schools quake-proof and reviewing the consumption and income taxes to spur consumption.
Hiroshi Hanada, an economist at The Sumitomo Trust & Banking Co., however was less hopeful about the effects of government intervention.
“It’s certainly better that the government does something, but the effects will be marginal,” Hanada said. “We cannot expect that economic deterioration will easily be halted by this.”
A Liberal Democratic Party task force wants a public entity to be empowered to purchase shares directly from the market with public funds in the event of a rapid stock plunge.
The project team is planning legislation to authorize the prime minister to order the public entity to buy exchange-traded funds as well as equity shares.
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