Hatoyama May Redirect 5 Trillion Yen of ‘Wasteful’ Stimulus
Japan’s incoming government may redeploy as much as 5 trillion yen ($54 billion) in stimulus spending currently planned for “wasteful” programs, Democratic Party of Japan lawmaker Hirohisa Fujii said.
“We should cut these projects considerably,” Fujii, regarded as a contender for finance minister, said in an interview in Tokyo yesterday. The money could be diverted to spend on child care, education and support for workers, he said.
The amount is the first specific estimate provided by the DPJ, which won power for the first time this week on a promise to help households as the country struggles to emerge from its worst postwar recession. Economists have questioned whether the plans to cut public-works spending and shrink the bureaucracy will be sufficient, saying it may have to increase bond sales.
“The challenge for the DPJ is how to find the money to finance its promises,” said Mitsumaru Kumagai, senior economist at Daiwa Institute of Research Ltd. in Tokyo. “The party needs to allocate a limited amount of money efficiently without providing an adverse impact on the bond market.”
Yukio Hatoyama, the DPJ leader, asked Fujii not to retire from politics before the Aug. 30 election, sparking speculation that the 77-year-old will take the finance portfolio. Fujii was one of 308 DPJ lawmakers who won seats in the 480-member lower house. Hatoyama, 62, is scheduled to choose his Cabinet on Sept. 17.
Bond Sales
Fujii reiterated Hatoyama’s intention to keep new bond sales in the next fiscal year within the 44.1 trillion yen allocated for the year ending March 2010. The DPJ needs to find 7.1 trillion yen to fund its election pledges in the year starting April 1, according to its election manifesto.
“We can do it,” Fujii said in the interview in his office near Japan’s parliamentary Diet building. “We need to follow that line, while monitoring various things such as how much tax revenue we’ll actually receive.”
Japanese government bonds have remained little changed since the election, with benchmark 10-year notes yielding 1.31 percent at the close yesterday, from 1.315 percent before the Aug. 30 vote.
Parliament passed a 13.9 trillion yen supplementary budget in May to fund Prime Minister Taro Aso’s stimulus. The election defeat of Aso’s Liberal Democratic Party leaves money unspent from that budget available for reallocation by the incoming administration.
Comic Books
About half of that total was “wasteful,” Fujii said. Some 4.3 trillion yen was funneled to government-related agencies without any specific purpose, and 2.9 trillion yen was set aside for construction projects such as a “manga” comic-book museum, he said. About 4 trillion yen to 5 trillion yen can be redirected from those areas, he added.
The new government could use the money in the current fiscal year, or next year to help fund the pledges to provide child care benefits and free high school tuition, Fujii said. Any cash left over could be used to trim government debt, he added. Japan’s public borrowings, the world’s largest, are approaching 200 percent of the size of the economy.
Fujii, who worked at the Finance Ministry for 21 years, said the DPJ should set targets for restoring fiscal health, such as reducing the ratio of debt to gross domestic product and balancing the budget — goals that were set by the LDP.
Debt Target
A fiscal overhaul “is something we’ll have to do,” and targets could be laid out as early as January, he said. Fujii added that the party is confident it will be able to pass the budget before the next fiscal year begins April 1.
Fujii was an LDP lawmaker from 1977 until he left the party in 1993 to participate in a coalition government of other groups. He served as finance minister in that administration, which lasted only 10 months.
While the DPJ wants to shift power to elected politicians from the bureaucracy, Fujii’s background may help minimize clashes with the Finance Ministry should he take that post, analysts said.
“Fujii is well balanced — he’s likely to avoid being overly confrontational or overly conciliatory toward the bureaucrats,” said Kumagai at Daiwa Research.
The DPJ respects the Bank of Japan’s autonomy and evidence that the recession is over won’t compel policy makers to raise the benchmark interest rate from 0.1 percent, Fujii said.
“I think the BOJ’s independence is important,” he said. “I don’t think they’ll raise rates just because we’re seeing a slight improvement in the economy.”
Fujii separately said the government should only step into the foreign-exchange market “when speculative funds cause abnormal movements.” Currency intervention “shouldn’t be abused,” he said, while declining to comment on the level of the yen.
He said the recovery may lose momentum this year as the job market deteriorates and wages decline. The unemployment rate climbed to an unprecedented 5.7 percent in July.
One challenge for the DPJ is to rebalance the economy away from a dependence on exports that has made urban regions richer than rural areas, Fujii said. That wealth disparity “will never be good for consumer spending,” he said.