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Japan needs another extra budget of up to ¥30 trillion ($270 billion) to support economic growth while its battle with the coronavirus drags on, says an adviser to Prime Minister Yoshihide Suga.

Economist Heizo Takenaka, in an interview this week, joined ruling party members calling for more spending as Japan muddles through a fourth virus emergency and voters prepare to head to the polls for elections by the fall.

“In the short run, fiscal stimulus is needed,” said Takenaka, once Suga’s boss at the communications ministry and now his adviser on growth policy. “It’s also very important at this moment to control COVID-19.”

With Suga’s approval ratings at record lows and virus cases creeping up in Tokyo before the Olympics, a growing drumbeat from within the Liberal Democratic Party has made another extra budget all but certain within the next few months. The only real question now is how much.

Takenaka pegs the number at between ¥10 trillion and ¥30 trillion. He said that much would be needed to plug the gap between supply and demand in the economy, an amount that has varying estimates.

Cabinet Office calculations put the number at around ¥25 trillion, while the Bank of Japan’s output gap suggests it’s less than a third as much.

“The supplementary budget has to fill in the existing output gap,” Takenaka said. “Spending should focus on green and digital,” two of the administration’s priorities.

Pedestrians cross the Shibuya scramble crossing intersection in Tokyo on June 27. | AFP-JIJI
Pedestrians cross the Shibuya scramble crossing intersection in Tokyo on June 27. | AFP-JIJI

Takenaka is well-known in Japan as an architect of banking and postal reforms undertaken by former Prime Minister Junichiro Koizumi during the early 2000s.

He and Suga have been close since at least 2005, when Suga served as his deputy at Japan’s internal affairs ministry, where Takenaka was minister. Last year, when Suga was coming in as prime minister, Takenaka urged his old colleague to try to score political points by working fast to get mobile phone fees cut for consumers.

Suga did that, but voters have been unhappy with his handling of the pandemic.

The economy has also underperformed, although a strong rebound forecast for the second half of 2021 has some analysts questioning the actual need for more stimulus spending now, especially given Japan’s debt.

Asked how any new budget money should be spent, Takenaka said 5G network infrastructure should be one investment priority. Another should be beefing up a ¥2 trillion green fund started last year, with the aim of eventually expanding it to several times its current size, he said.

He also said Japan should revamp its forestry policies to encourage more tree planting, something that would help with economic growth and Japan’s goal of becoming carbon neutral by 2050.

In the U.S. and Europe, the scale of money being put into green technology is perhaps 10 times larger, Takenaka said. “Innovation is necessary, but its not just innovation that’s needed.”

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