Prime Minister Yoshihiko Noda on Oct. 17 told the Cabinet members to draw up an economic package because the Japanese economy is losing steam. On the surface, his move seems reasonable. Japan's real economic growth plummeted to an annualized 0.7 percent in the April-June period from the annualized 5.3 percent growth in the January-March period. But his plan contains inherent problems.
First, Mr. Noda announced his plan abruptly at a time when there is no prospect of the government obtaining sufficient funds to implement the economic package. The Diet has not yet enacted a bill to float bonds to cover some 40 percent of the fiscal 2012 budget due to political bickering between the Democratic Party of Japan and the bloc of the Liberal Democratic Party and Komeito. The confrontation also is preventing the government from submitting a fiscal 2012 supplementary budget.
Although the government is cutting back on spending from the fiscal 2012 budget because it cannot float bonds, it is expected to run out of funds by the end of November. The only available funds for the economic package are those reserved in the fiscal 2012 budget to cope with an economic contingency and the revitalization of regions, amounting to ¥910 billion, and ¥400 billion reserve funds in the special account budget for the 3/11 disaster reconstruction. Since there may arise needs to use the reserve funds in the fiscal 2012 and reconstruction budgets for various purposes in the absence of bond flotation, it is unlikely that all the reserve funds can be used for the economic package. Thus the size of the package will not be big and its impact will be limited.