TOKYO (MNI) – To help alleviate downside risks stemming from the
quake, the government of Japanese Prime Minister Naoto Kan drafted last
Friday the first supplementary budget for fiscal 2011 totalling Y4.015
trillion.
The government will finance the extra budget by slashing outlays
planned in the initial FY2011 budget, without issuing new debt.
The Japanese government said on Wednesday that its Y4 trillion
first supplementary budget for rebuilding quake-hit areas is estimated
to push up Japan’s real gross domestic product by 0.6 percentage point.
The Cabinet Office also said the budget will create 200,000 jobs
and support firms to maintain 1.5 million existing positions.
Mitsuru Sakurai, vice finance minister, said recently that
supplementary budgets related to the reconstruction of the quake-hit
economy may reach Y10 trillion, as the government has to compile a
series of extra spending measures.
“Given rising requirements for more government spending, it looks
inevitable that the Bank of Japan will have to increase its commitment
to reconstruction efforts by the government,” said Mitsuru Saito, chief
economist at Tokai Tokyo Securities.
“While the BOJ has been showing a strong allergy to talks of direct
debt financing, it can help the government finance additional
supplementary budgets just by simply expanding the current asset-buying
program,” he added.
But Standard & Poor’s expressed increasingly concern Wednesday over
Japan’s growing public debt level.
The rating agency cut its the outlook for the nation’s foreign
currency- and yen-denominated sovereign debt to negative from stable,
citing fall-out from the March 11 earthquake.
The rating agency, meantime, affirmed its AA- rating for Japanese
long-term debt and A-1+ rating for short-term debt.
The rating action came after the S&P cut Japan’s sovereign debt
rating on Jan. 27, citing the ruling Democratic Party of Japan’s lack of
a “coherent strategy” to deal with the public sector debt approaching
200% of gross domestic product.
“S&P expects the reconstruction cost will reach from Y20 to Y50
trillion,” the rating agency said in a statement.
“Unless measures such as tax hike are implemented, outstanding
government debt would reach 145% of gross domestic products in fiscal
2013, against S&P’s earlier forecast for the ratio to reach 137%,” it
added.
Moody’s Investors Service lowered the outlook on Japan’s Aa2
sovereign debt rating to negative from stable in February, citing the
slow policy response by the government to surging public sector budget
deficit.
By the end of March 2012, the level of outstanding Japanese
government bonds will total Y668 trillion, 138% of projected gross
domestic product, while its outstanding long-term debt, including JGBs
and municipal bonds, is expected to total Y891 trillion, 184% of
projected GDP, according to an estimate by the Ministry of Finance.
As a result, Japan will remain the most heavily indebted
industrialized nation, dwarfing gross public debt held by Greece. The
troubled African nation of Zimbabwe is the only country in the world
with a higher debt-to-GDP ratio than Japan.
The Yomiuri Shimbun reported recently that the ruling Democratic
Party of Japan is considering hiking the consumption tax rate by three
percentage points from the current 5% as a means of funding future
supplementary budgets.
“From a macro-economic viewpoint, it is not a good idea to
implement a tax hike at a time when the economy, including household and
corporate sectors, needs a boost,” warned Takeshi Minami, chief
economist at Norinchukin Research Institute Ltd.
tokyo@marketnews.com
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