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Abe faces challenges to follow Trump with fiscal spending burst
[TOKYO] While Donald Trump is set to inject a dose of fiscal medicine into the world's biggest economy, any move by Shinzo Abe to further strengthen Japan's fiscal stimulus programme faces the challenge of disappointing tax receipts and a record debt burden.
The Japanese government already plans to spend 100 trillion yen (S$1.32 trillion) this fiscal year in its main budget, and two extra spending packages. That's close to the all-time high in outlays during the global financial crisis.
A third supplementary budget is on the drawing board to reconcile current-year spending and revenue figures, according to government officials familiar with the talks who asked not to be named per ministry policy.
As to whether it goes beyond being a clerical package and takes on stimulus measures, that's a function of what happens with politics, they said.
A policy shift at the Bank of Japan and doubts about how much more Mr Abe will accomplish in structural reforms is likely to increase pressure for a fiscal fillip.
"We can't put any more pressure on monetary policy, so the government will have to do more with fiscal spending," according to Koya Miyamae, an economist at SMBC Nikko Securities Inc.
Yet tax revenue for the 12 months ending March 31 is likely to be lower than originally expected, as economic growth has been weaker than initially forecast, and government debt is already about 2.5 times the size of the economy.
Japan's budget deficit was 5.8 per cent of gross domestic product in 2014, compared with 3.9 per cent in the US.
Asked about the need for another stimulus package this fiscal year, LDP Secretary General Toshihiro Nikai said last month it was "one option" according to Kyodo News.
Mr Trump has indicated he'll spend US$550 billion on infrastructure, with his plans forecast to add more than US$5 trillion in debt.
Satoshi Fujii, an adviser to Japan's Cabinet Office, advocates looking at more fiscal stimulus as part of efforts to escape deflation. He said in a telephone interview on Nov 11 that a third extra budget this year and a large initial budget next fiscal year may help Japan "fit very well with Trump's policies". Mr Abe is scheduled to meet Mr Trump later this week in New York.