Bloomberg News

Japan Plans Fourth Extra Budget in Step Unseen Since 1947

December 01, 2011

(Adds Noda’s comments in third paragraph.)

Dec. 1 (Bloomberg) -- Japan plans a fourth extra budget, a step unprecedented since postwar reconstruction, to help shore up a rebound that’s under threat from a surge in the yen, Europe’s crisis and Thai floods that have disrupted production.

Prime Minister Yoshihiko Noda today ordered the measure, which will probably be at least 2 trillion yen ($26 billion), Finance Minister Jun Azumi told reporters in Tokyo. The step won’t require the sale of deficit-covering bonds, he said. Japan has already allocated 18 trillion yen in three packages since the record earthquake in March.

“The yen’s gains, Thailand’s flooding and the European debt crisis are some of the factors that have increased the uncertainty of the economic outlook,” Noda said in a press conference in Tokyo. “I ordered the compilation of the fourth extra budget to secure the public’s peace of mind.”

The plan is Japan’s latest effort to secure its recovery, building on efforts including 15 trillion yen in asset purchases by the central bank and record amounts of yen sales to counter the currency’s surge. Nissan Motor Co. Chief Executive Officer Carlos Ghosn said yesterday his company will gradually shift production abroad because of Japan’s challenges.

“Economic growth will probably decelerate more than expected this quarter and next amid the global economic slowdown,” said Chotaro Morita, chief fixed-income strategist at Barclays Capital in Tokyo. “Not relying on new bond sales to fund it means the government will be able to avoid any political disputes about expanding fiscal spending further.”

MacArthur Era

Azumi said the supplementary budget will be drafted this month. The last time Japan had four extra fiscal packages was 1947, when General Douglas MacArthur was head of the Allied occupation forces after World War II. The finance chief said the outlays will be paid for in part through left over funds from the current fiscal-year’s budget.

The step adds to stimulus efforts under way around the world to cope with deteriorating prospects for the global economy next year. The Bank of Japan was one of five central banks participating in an effort led by the U.S. Federal Reserve to make it cheaper for banks to borrow dollars in emergencies. China lowered its required reserve ratio for lenders late yesterday, and Brazil lowered interest rates.

The Nikkei 225 Stock Average gained 1.9 percent to 8,597.38, joining a global rally in equities sparked by the dollar swaps announcement by the Fed, BOJ and central banks of Canada, U.K., Switzerland and the euro region.

Currency Strength

Companies from Toyota Motor Corp. to Sony Corp. have been contending with a surging yen against the dollar that threatens to crimp profits as well as flooding in Thailand that forced factory closures. The currency, at 77.68, is about 3 percent off of its highest against the dollar in the postwar era.

Authorities spent a record 9.09 trillion yen the foreign- exchange markets from Oct. 28 to Nov. 28, the Finance Ministry said yesterday, more than double what they sold when they intervened in August.

Reports in recent weeks have indicated Japan’s rebound from the March disaster is waning -- exports slid in October and the unemployment rate advanced, with data yesterday showing manufacturers planned to cut output in November.

Noda last month won parliamentary approval for his 12.1 trillion yen stimulus package, which also included 2 trillion yen worth of measures to help companies cope with the stronger currency. Two earlier stimulus packages totaled 6 trillion yen.

‘Top Priorities’

The prime minister today said he aims to get his ruling Democratic Party of Japan and its coalition partner to draft a plan this month on doubling the 5 percent national sales tax by the middle of the decade to cope with the world’s largest debt.

“Strengthening the structure of social security and ensuring stable revenue to make the system sustainable are top priorities,” Noda said. He said he wants to include a time table for a gradual increase in the consumption tax in this month’s draft “as much as possible.”

Thailand’s floods cost Toyota about 190,000 units of production globally from Oct. 10 through Nov. 19, the company said. About 30 electrical parts are still in “critical” supply, it said.

--With assistance from Anna Mukai and Sachiko Sakamaki in Tokyo. Editors: Lily Nonomiya, John Brinsley

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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