Japan election may curtail stimulus as recession looms
TOKYO
The Japanese Prime Minister Yoshihiko Noda’s decision to call an election in December may inhibit the government’s ability to stimulate an economy that’s sliding toward its third recession in four years.
Compiling an extra budget soon will be “difficult” as lawmakers cannot debate spending with the Diet dissolved, Economy Minister Seiji Maehara said this week. Stimulus using reserve funds won’t be enough to support the economy, he said in Tokyo today. Drafting of next fiscal year’s main budget may be delayed, Finance Minister Koriki Jojima said this week.
Constraints on government action add extra pressure for loosening by the Bank of Japan (8301) to spur growth, counter deflation and weaken the yen. Opposition leader Shinzo Abe’s call yesterday for unlimited easing had a bigger effect on the currency than the central bank’s most recent easing on Oct. 30, sending the yen to a six-month low against the dollar.
“There’s a risk that the recession which should be for two quarters could last for three or even four,” said Junichi Makino, chief economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest bank by market value, citing the risk of budget delays.
Noda will dissolve the lower house of parliament today after the upper house passed a bill to issue bonds to finance spending for the rest of this fiscal year, following a months- long impasse that left the government weeks away from running out of money. The election will be held on Dec. 16.
Jojima today pledged another round of stimulus using reserve funds from this year’s budget after announcing 400 billion yen ($4.9 billion) of measures last month.
The government today downgraded its view of the economy for a fourth month, the longest streak since the global financial crisis as exports fall and demand weakens. Panasonic Corp. (6752) this week said it plans to cut 8,000 jobs. Japan’s economy shrank an annualized 3.5 percent last quarter and will contract 0.4 percent in this three-month period, according to the median of 24 estimates in a Bloomberg survey, the third technical recession since 2008. Japanese recessions are officially defined by a government-charged panel that considers data beyond GDP figures.
Japan’s Topix Index is headed for the biggest two-day gain in more than a year on speculation that the election will be followed by more aggressive monetary action.
The Topix was 1.9 percent higher at 2:18 p.m.in Tokyo, with more than two shares advancing for each that fell. The gauge has gained more than 3.7 percent in the two days since elections were called. The Nikkei 225 Stock Average climbed 2.1 percent, with volume more than 60 percent above the 30-day average. Abe, the leader of the Liberal Democratic Party, yesterday called for unlimited easing until deflation is ended.