October 23, 2009 / 7:41 AM / 9 years ago

UPDATE 2-Japan's Kamei calls for Y10 trln 2nd extra budget

(For more stories on the Japanese economy click [ID:nECONJP])

* Kamei has reputation for being outspoken

* Democrats face tough decisions on fiscal policy (Adds economist’s comment, details on economy from paragraph 8.)

By Noriyuki Hirata

TOKYO, Oct 23 (Reuters) - Banking Minister Shizuka Kamei said on Friday that Japan needs to compile a second extra budget for the year to March worth at least 10 trillion yen ($110 billion) as the economy slowly recovers from a deep recession.

Kamei’s comments on the need for and potential size of an extra budget, made in a TV appearence, likely do not reflect mainstream thinking within Prime Minister Yukio Hatoyama’s government.

Kamei, also head of a junior coalition party in the Democratic Party-led government, has a reputation for being outspoken and blamed Japan’s largest business lobby for a spate of murders within families, saying it encouraged companies to put profits before people.

He has also pushed for a moratorium on bank loans despite concerns by other cabinet ministers that it would hurt bank profits. [ID:nT83511]

Still, Kamei’s concern about the slow pace of Japan’s economic recovery points to difficult decisions on fiscal policy that lie ahead as the Democrats try to secure the funds for spending programmes they say will boost domestic demand without causing bond issuance to spiral out of control.

“If we leave things as they are now and private demand doesn’t emerge, then the government will have to create domestic demand with spending that isn’t wasteful,” Kamei said.

“The economy may not hold up unless we compile a second extra budget worth more than 10 trillion yen.”

The Democrats are trying to cut a record 95 trillion yen in budget requests for 2010/11 after costs piled up for its schemes to hand out child allowances and make high schools free.

“Kamei does have an image as a person who makes controversial remarks,” said Norihiro Tsuruta, chief strategist for global investment research at Shinko Research Institute.

“But the problem with child allowances is that money may not be enough to help domestic demand if the father in the family loses his job or gets a pay cut. The government may have to consider what else it can do, but our debts are already very large.”

The economy emerged from its deepest postwar recession in the April-June quarter due to a recovery in global export demand. But economists say it will be difficult for growth to shift into a higher gear as the jobless rate is near a record high and companies are under pressure to lower wages to cut costs.

Japan’s new government, which voters swept to power in an election in August, has also conceded it will issue more than the 44 trillion in bonds allocated for the fiscal year to March due to a tax revenue shortfall.

The Democrats have identified 2.9 trillion yen in spending cuts from an extra budget complied by the previous government, but Finance Minister Hirohisa Fujii has said this money should not be used to make up for tax revenue shortfalls.

Japan’s outstanding debt is around 170 percent of gross domestic product, the worst among major economies. (Additional reporting by Stanley White; Editing by Michael Watson)

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