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Japan passes record US$939b budget

Publication Date : 21-03-2014

 

The Abe administration has secured a record 96 trillion yen (US$939 billion) budget for the fiscal year starting on April 1, aimed at ensuring that next month's sales tax hike will not significantly hurt Japan's recovering economy.

Prime Minister Shinzo Abe will have to battle a possible slowdown in economic growth due to weaker consumer and corporate spending, in part with more government spending on public works, defence and social welfare.

"I intend to continue making strong efforts to end deflation and grow the economy," he told Parliament yesterday.

There are fears that the sales tax, which rises from 5 to 8 per cent on April 1, will dampen already weak personal consumption, especially since many Japanese had bought big-ticket items in the past several months in anticipation of the tax hike.

That could make it harder for consumers to come out of the deflationary mindset that has depressed the economy for almost two decades.

Abe is seeking to avoid repeating the policy errors of then Premier Ryutaro Hashimoto in 1997 in raising the sales tax from 3 to 5 per cent, cooling the economy and bringing about the collapse of his administration the following year.

Although the so-called Abenomics policies are widely held to have helped Japan's exports by weakening the yen and boosting corporate profits and stock prices, latest official data shows the economy to be losing steam.

Earlier this month, growth for last year's October-December quarter was revised downwards to an annualised 0.7 per cent from an initial estimate of 1 per cent, fuelling concerns that the economy may shrink faster after the sales tax hike.

The influential Nikkei business daily reported that exports to Asia have failed to grow as expected despite the weaker yen, raising doubts about the effectiveness of Abenomics which had called for tapping fast-growing Asian demand to kickstart the Japanese economy. Japan has instead been replaced by South Korea as the largest exporter to China, especially of auto and electronic parts and petroleum products.

Meanwhile, imports, especially of natural gas, have risen rapidly as Japan continues to rely on fossil fuels as its main energy source.

Nevertheless, a Reuters poll earlier this month showed that major Japanese companies are more confident about weathering the impact of the sales tax hike.

The survey found that 59 per cent of respondents expect their revenue to recover to last year's levels within nine months of the tax hike, up from 47 per cent in a December poll.

Respondents cited government stimulus measures and demand from projects associated with disaster reconstruction and the 2020 Tokyo Olympics as some for the reasons for their optimism.

Senior economist Hideki Matsumura of the Japan Research Institute was quoted by Reuters as saying that spending on last- minute shopping ahead of the sales tax hike did not appear to be as much as expected.

The poll also found Japanese companies worried that Abe's hardline diplomacy with China could hurt their business at a time when Chinese demand appeared to be ebbing.

Together with a more than 5 trillion yen supplementary budget in February, the budget passed yesterday, which is 3.5 per cent more than last year's, gives the government more than 100 trillion yen to tackle Japan's budgetary woes.

Spending on public works will go up to 6 trillion yen, the second straight annual rise. Defence spending will also rise for the second year running, to about 5 trillion yen, as Japan seeks to boost maritime defences amid a territorial dispute with China.

Spending on social security, including pensions and medical care for the country's rapidly ageing society, will top 30 trillion yen for the first time.

*US$1 = 102.35 yen

 

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