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. Last Updated: 07/27/2016

Japanese Budget Has $825Bln Spend Plan




TOKYO -- Japan's Finance Ministry submitted Monday its largest ever budget, saying the 85 trillion yen ($825 billion) spending plan was essential for a recovery in the world's second largest economy despite fears of spiraling debt.


The budget for the year starting next April assumes the economy will expand by 1 percent over the period, a forecast which is largely in-line with the thinking of most private economists and up from projected growth of 0.6 percent this year.


Cautioning that Japan cannot continue a spending spree that has produced the world's biggest debt burden, Finance Minister Kiichi Miyazawa said the budget would help achieve one of the government's most prized goals - a self-sustaining recovery.


"We would like to contribute to the economic recovery, since we have not yet achieved the initial goal of [a self-sustainable recovery] that Prime Minister Keizo Obuchi set a year ago," he said at a news conference.


This looks particularly important with general elections due in less than a year, economists said.


Discretionary spending - the largest component in the budget and targeting everything from social security, education and science to defense and public works - is set at a record 48.09 trillion yen, up 2.6 percent from this year.


To finance the budget, which is up 3.8 percent from the current year, the government will issue a record 85.87 trillion yen in Japanese government bonds, or JGBs.


With tax revenue hovering at low levels due to slack economic activity and large tax cuts in recent years, the government plans to finance 38.4 percent of the budget by selling bonds, up from 37.9 percent for this year's initial budget.


When including bonds sold to finance two supplementary budgets for the current fiscal year, the amount of government spending financed through the debt market rises to 43.4 percent, a record high.


Japan's financial markets took the news mostly in stride, and bond prices moved higher despite the expected flood of new debt as traders viewed the amount as within expectations.


The key March JGB edged up 0.59 percentage points to close at 132.10. Japan's foreign exchange traders and stock market mostly shrugged off the news.


The draft legislation was submitted Monday to the Cabinet and will be discussed with other ministries before receiving final government approval, expected Friday. It will then be submitted to parliament in January.


Economists said the budget, along with an 18 trillion yen stimulus package announced in November, should push the recovery into a higher gear. They predicted a gradual upswing in the key weak areas of corporate capital investment and personal spending.


"Although it may not be a strong recovery, we can set a scenario that private demand would recover in the second half of fiscal 2000-01," Akihiko Suzuki, senior economist at Sanwa Research Institute Corp, said.


While deeply concerned by Japan's debt problems, the worst among major industrialized nations, policy-makers have said they do not want to repeat the mistakes made in 1997 by then-Prime Minister Ryutaro Hashimoto.


Hashimoto raised the consumption tax and curtailed government spending, actions which economists blamed for pushing the economy back into recession. With general elections due next year, politicians also are eager to spend money on vote-grabbing pump-priming steps to keep the recovery going.