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ECONOMY

Japan mulls extra budget as Abenomics disappoints

  • September 7, 2017
  • , Nikkei Asian Review , 04:45 a.m.
  • English Press

TOKYO — Japan’s ruling coalition is eyeing a massive spending package despite brisk economic growth, reflecting a political calculus among lawmakers eager to brighten their electoral prospects amid mixed results from Abenomics policy.

 

Senior officials in the Liberal Democratic Party and coalition partner Komeito already see eye to eye on submitting a supplementary budget. Toshihiro Nikai, the LDP’s secretary general, met with Komeito counterpart Yoshihisa Inoue at a Tokyo hotel in late August to discuss the game plan for the coming legislative term starting later this month.

 

“We should also include public works and other projects,” Nikai said. Inoue, for his part, insisted on disaster relief for parts of southern Japan flooded by torrential rains.

 

Scandals have eroded approval ratings for Prime Minister Shinzo Abe’s administration, casting doubt on Abe’s firm grip on power. Members of the ruling coalition have called for an economic stimulus package to spark a rebound ahead of a possible snap election for the Diet’s lower house that could occur as soon as this fall.

 

If party officials wrestle back control of policy formation amid declining support for the cabinet, pro-stimulus forces inside the ruling bloc likely will get their way. Even if Abe doesn’t dissolve the lower house this year, compiling an extra budget at the end of 2017 is increasingly looking like a foregone conclusion.

 

Something to take to the voters

 

Japan’s political environment for 2018 highlights how more spending is all but inevitable. Next year is the final year for core economic and fiscal policies, but the administration remains far from the goal of realizing a primary budget surplus.

 

Some LDP lawmakers have formed a caucus calling for modifications to Abenomics, Abe’s signature economic policy. An anti-Abenomics candidate is likely to take on Abe during the intraparty presidential election slated for September 2018.

 

Terms for lower house legislators end in December 2018, meaning the body likely would be dissolved during the latter half of that year. Seiji Maehara, the newly appointed president of the opposition Democratic Party, has labeled Abenomics a failure. Even if Abe does win a third consecutive term as LDP chief, he still will have to defend his policy from external challengers in the lower house races.

 

The administration would want to tout successes of Abenomics. But they won’t be found in the fight against deflation. The Bank of Japan has pushed back the time frame on six occasions for achieving the 2% inflation goal. Many critics say the central bank is running out of ammo for realizing the price stability target.

 

Thus one remaining choice is igniting the economy for the short term through additional fiscal outlays. Public works projects might be cast as pork-barrel spending, but people may rally behind earmarks for child care and education.

 

Confronting a wage-depressed recovery

 

In principle, extra spending should be allowed only for emergencies, and Japan’s gross domestic product grew at an annualized rate of 4% for the three months ended in June to achieve a sixth straight quarter of growth.

 

“In a macroeconomic environment in which full employment conditions have continued amid a labor shortage, a supplementary budget is not necessary,” said Ryutaro Kono at BNP Paribas.

 

That said, Abe’s economic growth strategy has yet to produce any major results — particularly an increase in wages. Labor’s share of income has fallen to its lowest level since 1971, when Japan was enjoying rapid economic growth. If top government officials are desperate to turn that situation around, they might revisit the hot-button issue of taxing retained corporate profit.

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