Japan to keep lid on spending

BUDGET OUTLINE: Move to bolster growth, rein in debt burden

JAPAN plans only a modest boost to government spending next year, a budget outline shows, as Prime Minister Shinzo Abe chooses not to follow the lead of United States president-elect Donald Trump and other Western governments in shifting to fiscal stimulus.

The Bank of Japan (BoJ) recently committed to keeping public borrowing costs near zero, giving a great deal of freedom to Abe to boost spending and get his reflationary goals back on track.

The prime minister is keeping a lid on spending, according to the budget document, as he seeks to both bolster growth and rein in the developed world’s heaviest debt burden.

And with a weak yen and rising stock market helping Japan’s companies, he faces no discernible cries to crank up spending.

“At this stage we don’t foresee large-scale fiscal mobilisation,” a government official involved in the process said.

This would put Japan out of step on policy with the US, where Trump has promised an infrastructure boom and deep tax cuts, and Britain, where the government is ramping up borrowing to cushion the economic blow from its decision to leave the European Union.

The situation is different in the world’s third-biggest economy.

“Additional fiscal expansion is not a necessity nor expected from the markets, with the weak yen and high Nikkei stock average following Trump’s election victory,” said Norihito Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley.

“If Japan gives spending a further boost in line with Trump’s expected expansion, fiscal deterioration would be more of an issue in an economy with a debt-to-GDP (gross domestic product) ratio of 247 per cent.”

The BoJ has helped make that debt affordable by pushing interest rates to historic lows with aggressive monetary easing by flooding the financial system with cash.

The budget document sets the stage to compile the budget for the fiscal year from April.

It reiterates the government’s ambitious aim to boost annual economic output by 20 per cent to 600 trillion yen (RM23.5 trillion) by fiscal 2020. Reuters