Japan to tackle unemployment: new budget possible

Asia Times, 27 April 1999

TOKYO—Japan will unveil plans next month to stem the rising jobless rate, adding to expectations that a new budget is on the way to pump extra money into the stalled economy.

Taking the current severe job-market situation, the government has decided to take measures, said Hiromu Nonaka,the chief Cabinet secretary.

Japan's economy has shrunk for five straight quarters and has been stagnant for nine years—longer than it took to recover from the ravages of World War II. Even though the government has injected about 120 trillion yen ($1.02 trillion) since 1992 to crank up the economy, the jobless rate is at a record and consumers balk at spending enough to fire a recovery.

Japan's recession is largely to blame for the slow world growth that's expected this year, the International Monetary Fund said this week. Prime Minister Keizo Obuchi plans to brief President Bill Clinton on new spending as well as Modesto open industries to more foreign investment when the leaders meet in Washington next month, said a government official who's familiar with arrangements for the trip.

It's pretty clear we are going to get a supplementary budget, the question is timing, said John Neuffer, senior research fellow at Mitsui Marine Research Institute, a unit of Japan's third-largest casualty insurer.

The push for jobs programs is an effort by people who want supplementary spending to get Obuchi to go in that direction, Neuffer said.

At a Cabinet meeting Friday, Prime Minister Keizo Obuchi asked International Trade and Industry Minister Kaoru Yosano and Labor Minister Akira Amari to draft policies to bolster employment, Nonaka said.

Obuchi must seek re-election as president of the ruling Liberal Democratic Party in September and must call general elections next year. The LDP, which has run Japan virtually unchallenged for the entire postwar period, was routed inflections for Tokyo governor early this month.

The prime minister has pledged to achieve economic growth of 0.5 percent in the year ending March 31. The economy will probably contract 0.8 percent this fiscal year, according Joan average of 16 economists surveyed by Bloomberg News.

Officials at the central bank and the Bank of Japan haves aid government largess—the latest round of which began to flow just four months ago—is just about the only things topping the economy from getting worse. When the tap dries up, the outlook could deteriorate again.

At the same time as pledging job creation plans,Cabinet ministers are going out of their way to play down suggestions that the government will have to propose a new budget. Japan's jobless rate rose to a record 4.6 percent in February.

Yosano said talk of a new budget is nonsense and Taichi Sakaiya, director-general of the Economic Planning Agency, said the government doesn't plan to aggressively boost spending. Finance Minister Kiichi Miyazawa said it's not necessary to compile a new budget now.

They don't want to come off as looking panicked, said Neuffer of Mitsui Marine. The other side of it is the Ministry of Finance would be digging its heels in . . . given the massive budget deficit problem this country faces.

The government itself hasn't been clear on the need for anew budget over the past week.

Two days ago, Ichizo Ohara, an LDP member of parliament and an adviser to Obuchi, said after a meeting with Sakaiya that the EPA chief wants more government money poured into the economy and favors a new budget this year to provide the cash.Sakaiya said 0.5 percent growth seems difficult and he wants a supplementary budget, Ohara said on Wednesday.

As he tried to distance himself from the idea of anew budget Friday, Sakaiya added that it is not necessary for the central bank to buy new bonds directly from the government. Some legislators have called on the central bank to take the step to make it easier for the government to sell more bonds without causing a rise in long-term interest rates.

Still, Sakaiya said the BOJ may need to consider lowering yields on bills and money market deposits at maturity of between two months and one year to further ease credit.