TOKYO: Japan unveiled a record 92.29 trillion yen ($1 trillion) budget Friday for the next fiscal year, reflecting the prime minister’s campaign pledge to boost spending for child support and slash wasteful outlay for public works.
The budget for the year starting in April 2010 came as Japan’s economy — the world’s second-largest — struggled to shake off its worst recession since World War II amid deflation.
“This budget is to protect lives. I made all my efforts to secure budgets to support child-rearing, employment, the environment and welfare,” Prime Minister Yukio Hatoyama told a news conference after his Cabinet approved the budget.
Spending on social welfare, which includes expenditures of monthly child allowances — one of Hatoyama’s key election promises — will jump by 10 percent from the initial budget of the current fiscal year to 27.3 trillion yen, a Finance Ministry official said.
The government will start giving families 13,000 yen a month per child through junior high from April 2010 to help ease child-rearing costs and encourage more women have babies.
Japan has the lowest percentage of children among 31 major countries, trailing Germany and Italy, according to a government report. In contrast, the nation’s elderly population is swelling.
Hatoyama, who came to power in September after a historic electoral victory in August, had also vowed during the election campaign to cut wasteful spending on public works.
His budget proposal earmarked 5.77 trillion yen in public works spending, down a record 18 percent from the initial budget of the current fiscal year, the Finance Ministry official said.
Hatoyama said his government will shift spending “from concrete to humans” with an increase in spending on education. His budget includes making all public high schools tuition-free from April 2010. Currently there are about 2.48 million students in public high schools — grades 10 through 12 in Japan — and they pay a nominal fee to attend.
The government will issue 44 trillion yen in bonds to cover a drop in tax revenue due to the prolonged economic slump, Hatoyama said.
The budget must be cleared by Japan’s Parliament early next year to take effect.
It came as Hatoyama saw his public support falling and Japan struggled to spur its nascent economic recovery amid falling prices and the yen’s recent strength, which hurts Japanese exporters.
The Organization for Economic Cooperation and Development has warned that Japan’s public debt is set to soar to more than 200 percent of gross domestic product by 2011.
“Rising debt is worrisome for Japan,” said Okasan Securities equity strategist Hirokazu Fujiki.
“With the new government, only the allocation of resources has changed and that hasn’t prevented debt from rising further.”
Japan’s economy grew in April-June for the first time in five quarters on rebounding exports and government stimulus measures, but stubborn deflation and a weak job market are seen as a threat to the recovery.
Meanwhile, deflation tightened its hold on Japan in November and the unemployment rate rose for the first time in four months, as the world’s second-biggest economy struggles to stage a convincing comeback. The unemployment rate climbed to 5.2 percent, reversing an improvement to 5.1 percent in October, the government said Friday. The result marks the first increase since July and matches Kyodo News agency’s average market forecast of 5.2 percent.
Although export growth, particularly to the rest of Asia, is helping boost confidence among Japanese companies, they remain reluctant to spend on factories or workers amid falling prices and the yen’s recent strength. The latest figures add to Hatoyama’s growing list of troubles, coming a day after the Japanese leader publicly apologized for two former aides charged with falsifying campaign finance reports.
Hatoyama’s popularity has dropped sharply just 100 days into his tenure as the nation questions his economic policies, even after unveiling a new 7.2 trillion yen ($78.7 billion) stimulus package earlier this month.
The number of jobless rose more than 29 percent from a year earlier to 3.3 million, according to the Ministry of Internal Affairs and Communications. The number of employed people declined 2 percent to 62.6 million.
The drop in the employed population suggests that many workers have stopped looking for work and have simply given up on the labor market, said Chiwoong Lee, an economist at Goldman Sachs in Tokyo. “The number of involuntary unemployed remains high, and we see no imminent job market recovery that would lead to improvement in wages,” Lee said in a report. “We think unemployment will probably stay at 5 percent for a while longer.” Ongoing weakness in the labor market will likely weigh on domestic demand, which would drag prices even lower.
Core consumer prices fell 1.7 percent from a year earlier, the ministry said separately.
The key consumer prices index, which excludes volatile fresh food prices, has now fallen for nine straight months. The reading matches Kyodo’s market forecast.
Core CPI for the Tokyo area, seen as a barometer of price trends nationwide, retreated 1.9 percent in December.
Declining prices, which plagued Japan during its “Lost Decade” in the 1990s, can hamper economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It also can increase debt burdens.
Last week, Japan’s central bank issued its strongest language thus far on deflation, saying it would not tolerate continued price declines. The statement came after pressure from the government for a more proactive stance.
The government also said the average monthly income per household fell 0.3 percent from a year earlier. Household spending during the month, however, managed to rise 2.2 percent in November from last year.
Consumer incentives introduced by the government resulted in solid demand for durable goods such as flat-panel televisions. But Masamichi Adachi, senior economist at J.P. Morgan Securities Japan, is less optimistic about the future of consumption.
“The next fiscal year’s budget is supportive to disposable income, particularly for households with children, but without a positive outlook toward labor income, it is difficult to expect a self-sustained solid increase in consumption,” he said in a note to clients.
Two key indicators due out Monday — industrial production and retail sales — will further clarify Japan’s economic picture and outlook.
The economy is still gradually recovering but increasingly appears to be heading for a lull, said Hiroshi Watanabe, an economist at the Daiwa Institute of Research. “Unemployment has improved rapidly for the past three months (to October) as it emerges from the worst period, but it is likely to stay slightly above five percent in the coming months,” he said.
Kyohei Morita, chief Japan economist at Barclays Capital, said the jobless rate could rise into the upper five percent range in the April-June quarter next year with retail and other sectors reducing job offers.
Deflation may ease due to an economic expansion and a planned tobacco tax hike, but inflation will not return any time soon, he added. “It will be at least three years until we see price rises. Japan’s economic recovery is not strong enough to break out of deflation,” he said.
Watanabe said consumers were tightening their purse strings as they expect prices to fall further.
