The anemic economy is prompting calls for another fiscal boost. If history and the government’s strained finances are any guide, a package is likely to redirect cash already on the books.
With ¥1.6 trillion left over from last year and rising tax revenue bolstering the public coffers, the Ministry of Finance has leeway to fund stimulus without adding to the world’s heaviest debt load. As much as ¥3.5 trillion is needed to jump start growth, an adviser to Prime Minister Shinzo Abe said after data showed the world’s third-biggest economy contracted last quarter.
Economists from SMBC Nikko Securities Inc. to Meiji Yasuda Life Insurance Co. and UBS Group AG see possible measures worth at least ¥2.5 trillion.
“Any recovery in the July-September period is looking sluggish,” said Yuichi Kodama, an economist at Meiji Yasuda Life. “It’s almost certain that the government will compile an economic package later this year.”
Kodama said the measures may be around ¥3 trillion to ¥4 trillion, with the government avoiding issuing new bonds. The details would need to be pinned down as early as October, in time for the government to submit a supplementary budget to the ordinary Diet session in January, according to Daiju Aoki, an economist at UBS Group.
The government is not seeking any urgent budgetary support for now, Economy Minister Akira Amari said on Sept. 1, after data showed unexpected declines in production and household spending in July.
Japan has compiled supplementary budgets every year since at least the fiscal year started in April 2008, with additional economic stimulus in the last three years and in 2008-2010. The last time it issued new bonds to pay for extra stimulus was in 2012, according to finance ministry data.
Any stimulus should be targeted at smaller companies and should not exceed ¥3 trillion, the head of the ruling Liberal Democratic Party’s finance committee, Masahiko Shibayama, said in an interview late last month.
The government could draw on funds left over from last year’s budget should it go ahead with another package, said Junichi Makino, an economist at SMBC Nikko. It could issue new bonds if necessary, while reducing issuance next fiscal year by a corresponding amount, he said. The difference would be made up by higher revenue expected on increasing corporate profits, he said.
Abe is trying to put the budget balance into surplus, excluding interest on debt, by the fiscal year starting in April 2020, which is unlikely even under the most optimistic Cabinet Office scenario.