Japan in Bankruptcy & Rise of Militarism

Aso Orders Third Stimulus to Ease Japan’s Recession
By Takashi Hirokawa and Keiko Ujikane

Japanese Prime Minister Taro Aso ordered a third spending plan aimed at easing a recession that may be the nation’s worst since World War II.

“There is a risk of further economic downturn,” Aso said at a news conference in Tokyo today. “We must act before the risk becomes reality.” He’ll seek advice from a panel of economists, industry leaders and government officials next week.

Aso, whose approval rating has plunged ahead of elections that must be called by September, has announced 10 trillion yen ($102 billion) of spending since becoming prime minister six months ago. Finance Minister Kaoru Yosano said the government will also inject 121 billion yen into three regional banks and discuss ways to support the stock market after the Nikkei 225 Stock Average tumbled to a 26-year low this week.

“It’s all positioning for the elections,” said Takahira Ogawa, director of sovereign ratings at Standard & Poor’s in Singapore. “There isn’t that much thought about the people or companies who really need the money.”

Yosano said he supports U.S. Treasury Secretary Timothy Geithner’s call on the Group of 20 nations to spend more to end the global financial crisis. Aso may be ready to announce a package at the summit of G-20 leaders in the U.K. in April, said Yosano, who will attend a meeting of his counterparts from the group in London tomorrow.

2 Percent

Geithner said on March 11 that the International Monetary Fund’s recommendation for stimulus equivalent to 2 percent of a nation’s gross domestic product is a “reasonable benchmark.” The IMF estimates Japan’s stimulus measures constitute 2.2 percent of GDP, the U.S.’s amount to 4.8 percent and China’s total 4.4 percent.

Yosano, 70, told the Financial Times that Japan wants next month’s summit to focus on action to support the world economy instead of on improving the regulation of financial markets. Yosano said he understood the European-led push to dwell on tightening financial regulation, while suggesting economic challenges were more urgent, the report said.

The Mainichi newspaper reported today that Japan’s next stimulus may total 20 trillion yen and the government may sell more bonds to pay for it. Yosano gave no details about the size of the program.

The yield on the benchmark 10-year bond rose half a basis point to 1.315 percent at 5:22 p.m. in Tokyo. The Nikkei jumped 5.1 percent, the most this year, after Yosano said the ruling party will consider measures to help stocks next week.

Koo, Feldman

Members of the panel will include Bank of Japan Governor Masaaki Shirakawa; Richard Koo, chief economist at Nomura Research Institute Ltd.; Robert Feldman, head of Japan economic research at Morgan Stanley; and Katsuhiko Machida, chairman of Sharp Corp. The meetings will last five days.

Aso, 68, stressed the need for a “multiyear” stimulus plan that includes financing for public works and addresses Japan’s rising joblessness. “We have to reduce the pain seen in employment,” he said.

Speaking later to reporters, he said he wasn’t considering a supplemental budget for the fiscal year starting April 1 “at this stage.” The upper house of parliament is debating the budget bills for next year after they cleared the more powerful lower house on Feb. 27, ensuring their passage.

Aso said market and economic conditions will have no bearing on when he dissolves parliament and calls for elections, which must be done by Sept. 10.

The world’s second-largest economy shrank at an annual 12.1 percent pace in the fourth quarter, the most since 1974, figures showed yesterday. Toyota Motor Corp. and Sony Corp. are cutting production and firing thousands of workers in response to an unprecedented drop in exports.

Aso only got parliament’s approval last week for stimulus measures announced four months ago after the opposition- controlled upper house objected to them. The package “took too long and it’s too small,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo.

Debt Burden

Japan’s ability to spend is limited by its public debt, which at more than 170 percent of GDP is the world’s largest.

“The single biggest negative factor weighing on Japan’s sovereign credit rating is its large fiscal deficit and its large government debt burden,” said Ogawa at S&P. “For us, the most important issue is how fast and to what extent the government can restore its power to execute policy.”

S&P raised Japan’s debt rating to AA, the third-highest grade, in April 2007. Ogawa said that while the company didn’t need to consider altering the assessment for now “if this condition lasts too long, then we may have to think about whether or not the rating or the outlook is still valid.”

The stimulus plan approved last week authorized cash payments of 12,000 yen to individuals, about the equivalent of a trip to Tokyo Disneyland for two adults. Economists say it would have been better to target lower-income households.

Protecting the Poor

“We’re hesitant to say fiscal stimulus is really the way ahead,” said Randall Jones, head of the Japan desk at the Organization for Economic Cooperation and Development in Paris. He said Japan should concentrate on protecting lower-income households through social welfare and unemployment benefits.

The government is considering using zero-coupon bonds to finance purchases of exchange-traded funds, which track stock indexes, the Nikkei newspaper reported today.

Sapporo Hokuyo Holdings Inc., Minami-Nippon Bank Ltd. and Fukuho Bank Ltd. will be the first to receive public funds under a plan unveiled in December to inject as much as 12 trillion yen into domestic banks to spur lending.

The government will buy 100 billion yen of preferred securities in Sapporo Hokuyo, the company said in a statement. Minami-Nippon will receive 15 billion yen of public funds and Fukuho will get 6 billion yen, Yosano said.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net.