Public works in Japan extra budget unlikely to top 5 trln yen -source

TOKYO Tue Dec 25, 2012 1:56am EST

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TOKYO Dec 25 (Reuters) - Public works spending in a Japanese extra budget for the current fiscal year to March is unlikely to exceed 5 trillion yen ($59 billion), a source close to incoming Prime Minister Shinzo Abe said on Tuesday.

Abe, who formally takes office on Wednesday following his Liberal Democratic Party's stunning victory in a Dec. 16 election, is expected to draft the budget by mid-January with markets looking for 10 trillion yen in new spending, part of which would need to be covered by new borrowing.

"The extra budget will be presented to parliament towards the end of January. We cannot find 10 trillion yen worth of public works projects by then," the source told Reuters, adding that the 10 trillion yen total figure was not set in stone.

"The scale will be 10 trillion yen but it will not be limited to public works spending. The most we could manage on public works would be 5 trillion."

The remainder could include such steps as tax breaks for purchases of fuel-efficient cars and government funding for basic pension payouts, he added.

The source also said he thought Abe's new government was unlikely to have to revise a law guaranteeing the Bank of Japan's independence, since the BOJ was likely to agree to Abe's proposal for a 2 percent inflation target.

"I don't think it will go so far as revising the BOJ law," the source said. "The BOJ has compromised quite a bit ... and I think it will adopt a 2 percent inflation target. In that case, it will not be necessary to revise the BOJ law."

Abe on Tuesday reiterated his calls for the BOJ to conduct drastic monetary easing to beat deflation by setting a 2 percent inflation target but added that once he became premier, he would leave it up to the central bank to decide on specific measures on monetary policy.

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