Japan Enacts Record $144 Billion Extra Budget

Japan enacted a record 13.93T yen ($143.73B) extra budget, enabling the gov't. to execute fresh stimulus steps to support an economy mildly improving after 2 quarters of double-digit pace shrinkage. The supplementary budget, the 1st for the fiscal year started April, is to fund the latest stimulus package of Prime Minister Aso's cabinet. The package contains spending and tax cuts worth 3% of Japan's annual economic output, ranging from unemployment aid to subsidies to spur demand for autos & electronics. The main budget bill was enacted after opposition-controlle House voted it down early in the day. It already Lower-House approval and under Japan's constitution, budget is automatically approved following the upper chamber's vote, regardless of which way upper chamber decides. The passage of the budget is clearly a plus for the economy, that needs government money to cover some slack in demand left by the recent domestic & global recessions, said the chief economist at Dai-Ichi Life Research Institute. The package is the 4th since last August & the largest ever, & comes at a crucial time for Asia largest economy. Data showed Japan's April industrial output rose for a 2nd straight month & bigger-than-expected 5.2% over March figure, signaling a corp.-sector pickup amid improving exports. But domestic demand is under stress. In April, unemployment rate hit a five-year high of 5.0% while consumption continued to fall. Moreover, consumer prices in the key Tokyo area fell 0.7% in May from a year earlier, the sharpest drop in over 6 years, threatening emergence of deflation. While the gov'ts. planned fiscal spending could support domestic demand, there is concern over how it can damage Japan's poor financial health. The extra budget involves selling 10.8T yen worth of bonds, bringing the gov't.s total new bond issuance in fiscal 2009 to a record 44T yen. Further issuance can come later in the fiscal year to fill in the hole created by diving corporate tax revenue, government officials said. Such prospects play a role in driving Japan's long-term interest rates to 6-month highs of around 1.5% recently, making it costly for companies & consumers to borrow. Still, deficit-spending is inevitable, he said. "If the government sits idly by and allows weakness in demand, it will risk a deflationary spiral" that can seriously damage growth, he said. The gov't. & some economists say while the package isn't enough to lift Japan's fiscal 2009 growth rate into positive territory, it can boost price-adjusted GDP by about 2% points. Others expect a boost of 1 point or less. For the Japanese fiscal year ended March, GDP fell 3.5%, the worst on record. That was mainly due to annualized drops of 16.5% in the 1st-Q & 15.2% in the earlier 3 months. Critics led by Japan's opposition parties argue that many of the planned stimulus projects are a waste of money. In particular, they have pointed to an 11.7B yen scheme to build an art center for Japanese comics, games & animation as a pork barrel. Several measures in the package still require separate legislation passages currently being debated in Parliament. There is 6 such bills, one of which proposes cuts in levies like gift tax. 2 others are to empower the gov't. to buy stocks worth tens of trillions of yen in emergencies. But those steps are worth less than 1T yen in terms of upfront spending and tax breaks, meaning the gov't. can start executing most other segments of the package.