Japan set to cut back on spending
By Stanley White and Leika Kihara |
December 25, 2009, Friday
|
Print Edition
Print Edition
JAPAN'S government is likely to cut spending plans pledged in its election campaign as it scrambles to keep next year's budget under control, putting more burden on the central bank to avert a deflation-led downturn next year.
Bank of Japan Governor Masaaki Shirakawa offered few clues yesterday on his policy options, although he promised that the central bank would act promptly and decisively if financial markets were to become unstable.
The government and the central bank have clashed over how to deal with deflation, which the bank forecasts will last at least three years, as politicians fear it could drag down the economy just as it is emerging from the global financial crisis.
The bank buckled earlier this month, calling an emergency meeting to announce a short-term funding facility and last week underlined its deflation-fighting credentials by declaring it would tolerate nothing but price growth.
Now, with the government cutting its spending plans to appease worried investors and keep a ratings downgrade at bay, the onus may swing once again to the bank.
"The Bank of Japan will most likely face pressure to do more," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore.
"They felt they needed to make some noise about the yen's rise, and in a certain sense they succeeded. They could try buying more securities, bonds or other credit facilities."
Japan's public debt is rising toward 200 percent of gross domestic price, the biggest in the developed world. In office for just three months, the Democratic Party-led government is keen to avoid a worsening economy before upper house elections in mid-2010.
Dithering over budget and other decisions has already undermined government popularity. Cabinet ministers had said they hoped to approve next fiscal year's budget today.
Bank of Japan Governor Masaaki Shirakawa offered few clues yesterday on his policy options, although he promised that the central bank would act promptly and decisively if financial markets were to become unstable.
The government and the central bank have clashed over how to deal with deflation, which the bank forecasts will last at least three years, as politicians fear it could drag down the economy just as it is emerging from the global financial crisis.
The bank buckled earlier this month, calling an emergency meeting to announce a short-term funding facility and last week underlined its deflation-fighting credentials by declaring it would tolerate nothing but price growth.
Now, with the government cutting its spending plans to appease worried investors and keep a ratings downgrade at bay, the onus may swing once again to the bank.
"The Bank of Japan will most likely face pressure to do more," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore.
"They felt they needed to make some noise about the yen's rise, and in a certain sense they succeeded. They could try buying more securities, bonds or other credit facilities."
Japan's public debt is rising toward 200 percent of gross domestic price, the biggest in the developed world. In office for just three months, the Democratic Party-led government is keen to avoid a worsening economy before upper house elections in mid-2010.
Dithering over budget and other decisions has already undermined government popularity. Cabinet ministers had said they hoped to approve next fiscal year's budget today.
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