By political reporter Satoshi Ariizumi
Prime Minister Shinzo Abe plans to pass the second FY16 supplementary budget to fund the economic stimulus package as soon as possible during the extraordinary Diet session convening in September in his effort to break away from economic stagnation. He is retaining Deputy Prime Minister and Finance Minister Taro Aso and Economic Revitalization Minister Nobuteru Ishihara, two key ministers for economic management, in his cabinet reshuffle on Aug. 3 in order to put in place a powerful team for accelerating Abenomics, a pledge he made in the recent House of Councillors election.
Abe stated at the informal government-ruling parties policy meeting on Aug. 2: “We will not only stimulate immediate demand, but will also promote sustained economic growth,” indicating his hope that the pump-priming package will boost the economy.
In compiling the economic package, Abe paid meticulous attention to its impact on the market. The economic measures were originally planned to total around 20 trillion yen but were increased to over 28 trillion yen in a surprise move, with “fiscal spending” set at 13 trillion yen.
The level of “fiscal spending” used to be calculated by adding national and local government spending, but this time, the Fiscal Investment and Loan Program, which provides low-interest loans to private businesses, has also been included. It is reckoned that adopting this “new concept” (according to a senior Finance Ministry official) was meant to give the impression of aggressive fiscal measures.
Inasmuch as Abe has decided to postpone the consumption tax increase by 30 months, it is imperative that he actually ends deflation and achieves vigorous economic growth. This economic package will be his first litmus test. “If he disappoints the market, there will be a stock price plunge and the administration itself may lose steam,” according to a government source. It appears that such a sense of urgency was also behind the enlargement of the stimulus package.
Although Abe has consistently adopted an economy-first policy since the start of his second cabinet in 2012, personal consumption and corporate capital investment are beginning to slow down. One of his aides suggests that he decided to retain many key ministers in his cabinet reshuffle on Aug. 3 in order to “convey the message that his determination to make utmost efforts to end deflation and spur economic growth remains unchanged.”