Japan seen adopting extra budget despite solid economy

[TOKYO] The Japanese government is widely expected to compile an extra budget for this fiscal year, despite the improving economy, economists polled by Reuters say.

Compiling extra budgets has become a habit for Japan as it struggles to shore up stagnant activity with funds for everything from shopping vouchers and aid for struggling rural regions to reconstruction after the 2011 tsunami and nuclear disaster.

This year, however, the Japanese and global economies are in good shape, and 31 out of 35 analysts polled in the Sept 5-12 survey said there was no need for an extra budget, besides steps for natural disaster relief.

"The economy is at full employment conditions and the global economy is steadily expanding," said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.

"It would not be acceptable to compile a huge extra budget."

However, 22 economists predicted that the government would stick with its pattern and pass extra spending anyway, the poll showed.

Mr Mutou said the government might announce a small supplementary budget for the year through March, aimed at areas such as lifting Japan's falling birthrate and education.

Both chief cabinet secretary Yoshihide Suga and Economy Minister Toshimitsu Motegi have said there are no plans for a supplementary budget.

Boosting government spending would likely add to Japan's debt burden, which is already more than twice the size of its GDP.

Analysts have long warned Japan's public finances would collapse if its debt problem goes unsolved.

The poll also showed that most analysts believe the BOJ will keep its current pace of monetary easing until at least late next year as the pace of gains in consumer prices remain very slow, even though the economy is growing.

A majority of the analysts polled say the BOJ's next move will be to scale down current stimulus measures, rather than expanding monetary easing.

In July, the BOJ maintained the 0.1 per cent interest it charges on a portion of excess reserves that financial institutions park at the central bank.

It also kept its yield target for 10-year Japanese government bonds (JGB) around zero per cent.

Harumi Taguchi, principal economist at IHS Economics, says the BOJ will likely stand pat unless it sees heightened risks to the recovery.

"The BOJ is expected to keep the current monetary stimulus to avoid sending a wrong message to the markets in the situation where prices are not rising toward its target stably," she said.

The core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 0.5 per cent in July, the seventh straight increase, but still a long ways from the bank's two per cent target.

Prime Minister Shinzo Abe said he wants the country's central bank to focus on monetary policies geared at achieving the inflation target, regardless of who becomes the next governor, the Nikkei newspaper said on Wednesday. Governor Haruhiko Kuroda's term will end next April.

But analysts don't expect price pressures to pick up much. They forecast core CPI will rise 0.6 per cent this fiscal year and 0.7 per cent in the next, largely in line with last month's survey.

The economy is seen expanding 1.7 per cent this fiscal year, up from 1.4 per cent projected last month, the poll showed.

It is seen growing 1.1 per cent for the next year, unchanged from the previous survey. Some analysts responded to the survey before the revised GDP data for April-June.

Japan's economy expanded at an annualised rate of 2.5 per cent in April-June, the revised data showed, much less than a robust initial estimate of four per cent growth.

But analysts said the recovery is still intact, citing strong exports and a tightening labour market that improves prospects for higher wages and consumer spending.

REUTERS