Japan ruling party piles pressure on govt for big fiscal spending

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    TOKYO – Japan’s ruling party lawmakers on Wednesday piled pressure on the government to compile a big spending package, increasing the chance fiscal policy could play a bigger role in sustaining a fragile economic recovery with the risk of more debt issuance.

    Hiroshi Moriyama, a senior lawmaker of the ruling Liberal Democratic Party (LDP), told reporters on Wednesday he believed the government was striving to compile a supplementary budget sized around 10 trillion yen ($92 billion) – a size floated by several of his colleagues earlier this month.

    “I want (the government) to compile it taking downside risks to the economy fully into account,” Moriyama said on the extra budget that is now being worked out by the government.

    With tax revenues seen undershooting the government’s forecast this year, calls for bigger fiscal spending heighten the chance Japan will issue more bonds and further delay progress in reining in its huge public debt, analysts say.

    Katsutoshi Inadome, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities reckoned it could result in bond issuance to cover the 2020 defict reaching a six-year high.

    There is no consensus within the LDP, however, on whether to fund the 10-trillion-yen package just with the supplementary budget for the current fiscal year ending in March 2020, or to spread the bill between the supplementary budget and next fiscal year’s annual state budget.

    In a proposal to the government finalised on Tuesday, the LDP called for spending sized around $92 trillion yen to be spread over the next fiscal year, thereby reducing the size of the supplementary budget.

    The package proposed by the LDP calls for steps for disaster relief, as well as spending on infrastructure building, steps to boost small firms’ productivity and aid to farmers bracing for effects of a trade deal with the United States.

    Japan’s economic growth slumped to its weakest in a year in the third quarter as soft global demand knocked exports, heightening political calls for big fiscal spending to stave off the risk of a recession.

    The International Monetary Fund also endorsed more spending to prop up growth, saying fiscal policy can complement the Bank of Japan’s effort to support the economy. – Reuters