Japan government OKs $26 billion extra budget to fund stimulus spending

TOKYO (Reuters) - The Japanese government on Friday approved a $26 billion extra budget for the current fiscal year to fund stimulus spending and help pull the economy out of recession.

Japan's Prime Minister Shinzo Abe makes a speech at a New Year party hosted by the Japan Business Federation, Japan Association of Corporate Executives and Japan Chamber of Commerce and Industry, in Tokyo January 6, 2015. REUTERS/Toru Hanai

The 3.118 trillion yen extra budget for the stimulus, unveiled last month, includes funding for steps such as helping Japan’s lagging regions and households with subsidies and shopping vouchers and rebuilding after natural disasters.

The extra expenditure comes on top of the initial outlay of 95.9 trillion yen, bringing the total amount of this fiscal year’s general-account budget spending to 99 trillion yen, highlighting Japan’s struggle to fix dire public finances.

“This budget is well-focused in terms of speedily responding to weak and fragile spots in the economy,” Finance Minister Taro Aso told reporters after a cabinet meeting. “I think it meets the aim of reviving the economy and rebuilding public finances.”

In a show of commitment to fiscal reform, the government will not resort to fresh borrowing, while cutting new bond issuance by 757.1 billion yen from the initially planned 41.3 trillion yen for the current fiscal year ending in March.

Tokyo will fund the package with unspent money from previous budgets and tax revenue that have exceeded budget forecasts. Corporate profits have been boosted by aggressive monetary and fiscal stimulus policies under Prime Minister Shinzo Abe, even as the broader economy has struggled.

Higher profits by companies helped tax income in the current fiscal year increase by 1.725 trillion yen from the initially estimated 50.0 trillion yen. That marks the highest level in 17 years, allowing Tokyo to cut new bond issuance from the initially planned amount for the first time in eight years.

Japan must strike a delicate balance between reviving an economy that tipped into recession after a sales tax hike last April and reining in snowballing public debt that is twice the size of its economy, by far the largest in the developed world.

The world’s third-largest economy is expected to have returned to growth in the final quarter of last year after two straight quarters of contraction.

The government expects the stimulus to boost Japan’s gross domestic product by 0.7 percent, while private-sector economists see a smaller impact.

($1 = 119.3400 yen)

Reporting by Tetsushi Kajimoto; Editing by Kim Coghill and Ryan Woo