Japan eyeing fresh stimulus worth over 2% of GDP

TOKYO, April 6 Kyodo - Japan will implement an additional fiscal stimulus plan involving more than 10 trillion yen of actual spending, or over 2 percent of the nation's gross domestic product amounting to around 500 trillion yen, Finance Minister Kaoru Yosano said Monday.

Yosano told reporters after meeting with Prime Minister Taro Aso that the
government will compile a fiscal 2009 supplementary budget to finance the
package.
The minister said the government will aim to finalize the additional
economy-boosting plan on Friday.
Aso told reporters in the evening that an additional pump-priming package is
necessary as Japan's economic outlook ''shows the largest fall among
industrialized nations'' and that participants at the April 2 financial summit
held in London ''concluded that we need to step up fiscal spending.''
The fiscal 2009 extra budget will likely be submitted to the Diet for
deliberations later this month, government sources said.
If more than 10 trillion yen of actual spending is incorporated in a single
extra budget, it would be the largest ever seen in Japan. The new package is
expected to surpass the 7.6 trillion yen of spending in the third extra budget
for fiscal 1998, currently the largest ever.
Yosano quoted Aso as saying that Japan's economy has been shrinking faster than
other major economies and said the prime minister sees the need to carry out a
plan for Japan to spend more than 2 percent of its GDP ''to be on par with
other countries.''
Japan's GDP contracted an annualized real 12.1 percent in the October-December
quarter, falling at the fastest pace in about 35 years. In the same period, the
U.S. economy shrank an annualized real 6.3 percent, while the eurozone economy
also posted an approximately 6 percent annualized contraction.
Chief Cabinet Secretary Takeo Kawamura suggested later in the day that the more
than 10 trillion yen in fiscal spending will not necessarily be equal to the
size of the envisioned fiscal 2009 extra budget, and that the package could
involve multiple-year appropriations beyond fiscal 2009.
Yosano added that the package will focus on measures to bolster the safety net
for nonregular workers facing precarious employment conditions, support
cash-strapped small businesses, revitalize regional economies and promote solar
power-generation industries as well as nursing and medical services.
The new stimulus will be formulated on top of steps worth 75 trillion yen being
implemented since last October, which involve about 12 trillion yen in fiscal
spending.
Vice Finance Minister Kazuyuki Sugimoto said at a press conference that he
believes Aso ordered the compilation of the fresh economic package based on an
agreement reached by major advanced and emerging economies in London.
On April 2, the Group of 20 major industrialized and fast-growing economies
reached an accord to ''deliver the scale of sustained fiscal effort necessary
to restore growth.''
The International Monetary Fund has called for countries to adopt fiscal
stimulus measures equivalent to 2 percent of their GDP in 2009 and 2010, and
the United States has endorsed the target as a ''reasonable'' benchmark.
Yosano declined to comment on how the government will finance the stimulus
plan. Aso said earlier he will ''not hesitate to issue deficit-covering bonds''
to pay for the envisioned steps.
Japan's fiscal conditions remain the worst among the world's major developed
countries. The balance of the nation's outstanding debt was forecast to reach
around 170 percent of GDP in 2008, according to an Organization for Economic
Cooperation and Development survey.
Following Yosano's remarks on the stimulus, the yield on the benchmark 10-year
Japanese government bond closed at a five-month high Monday on selling sparked
by concern over an expansion in government bond issuance in line with the
compilation of the fiscal 2009 supplementary budget.
Yosano said the fresh economic package should incorporate three key T's --
''targeted'' spending, ''timely'' measures and ''temporary'' outlays to observe
fiscal discipline.
Sugimoto said the package should be crafted according to the principle of
''wise spending'' so that public funds will not be injected into ineffective
projects. He also said the fresh spending will be made to ''alleviate pain'' in
some sectors amid the current economic downturn.