The legislation passed Tuesday by the Lower House authorizing the sale of bonds to finance the budget will probably be blocked by the Upper House, complicating Prime Minister Yoshihiko Noda’s economic policy.
The bill authorizes the sale of ¥38.3 trillion in so-called deficit-financing bonds to pay for about 40 percent of budget spending for the year that began April 1. The Liberal Democratic Party is preparing a censure motion against Noda, and its leader, Sadakazu Tanigaki, signaled last week his party won’t approve the bill unless Noda calls new elections.
Finance Minister Jun Azumi said last month the government will run out of money in October should the bill fail to pass.
A repeat of last year’s political wrangling that delayed similar legislation is threatening investor faith in management of the world’s largest debt, economist Junko Nishioka said.
“Credit-rating companies have cited Japan’s unstable politics as a major factor for a possible downgrade of the country’s sovereign debt and this is an extraordinary situation,” said Nishioka, chief economist at RBS Securities Japan Ltd. and a former Bank of Japan official. “Investors’ trust in Japan’s fiscal policy continues to be fragile.”
The LDP this month helped pass legislation doubling the 5 percent consumption tax by October 2015 in return for Noda’s pledge to dissolve the Diet and call elections “soon.” Tanigaki told reporters last Thursday that “we hope the Diet will be dissolved swiftly, and then after that we can discuss the handling of” the deficit financing bill.
Tanigaki also said the LDP may submit a nonbinding censure against Noda in the Upper House as soon as Wednesday.
Last year the ruling Democratic Party of Japan had difficulty pushing through a deficit-financing bond issuance bill because the opposition blocked its passage to force then-Prime Minister Naoto Kan to resign. The bill was approved last Aug. 26, the same day Kan announced his resignation.
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