Japan's Abe Seeks Foreign Support for More Government Stimulus
24 May 2016 - 7:10PM
Dow Jones News
TOKYO—Prime Minister Shinzo Abe is hoping to get some help from
his Group of Seven friends this week for his plans to prop up
Japan's economy with more government spending.
The meeting of leaders from seven major industrialized nations,
taking place Thursday and Friday in Ise-Shima, Japan, comes at a
critical time for Mr. Abe. Growth in the first quarter was better
than expected, but the economy is struggling to gather sustained
momentum, even after the Bank of Japan introduced negative interest
rates early this year.
Mr. Abe faces parliamentary elections in July and a decision on
whether to postpone a sales-tax increase scheduled for April 2017.
He is also considering a government spending package.
His advisers said they are hoping the G-7 leaders, including
President Barack Obama, will endorse using government purses to
stimulate growth world-wide. That might help win over skeptics in
Japan.
"The only way to grow the economy when private consumption and
investment are stalling is through government expenditures,"
Finance Minister Taro Aso said Friday.
Faced with risks to the world economy, global policy-makers have
stressed the need in recent months to take a more balanced approach
to stoking growth, by adding more fiscal spending and structural
reforms to the extraordinarily easy monetary policy already in
place.
Efforts by Japan and others to reach consensus on the need for
more government spending, perhaps in coordination, ran into
skepticism from Germany during a meeting of G-7 finance ministers
last weekend. Germany stressed the need to reduce deficits and debt
while undertaking structural reforms, and the ministers ended up
concluding that each country should take the measures it deems
appropriate.
Advisers said Mr. Abe plans to try again, seeing German
Chancellor Angela Merkel as possibly more willing to make a
concession on wording than her finance minister, fiscal hawk
Wolfgang Schä uble.
Once the meeting is over, Mr. Abe will quickly turn his
attention to domestic politics. The current session of parliament
is set to end June 1. A senior administration aide said Tuesday
that Mr. Abe would hold a news conference that day and may declare
his intention on the national sales-tax, which is set to rise to
10% from 8% in April 2017.
The aide said Mr. Abe was considering delaying the tax increase.
While Ministry of Finance officials have pushed for the increase to
happen on schedule, citing the need to repair Japan's finances, the
aide said the prime minister didn't trust their views and feared a
repeat of April 2014, when an earlier tax rise pushed Japan's
economy into recession.
Consumer spending has yet to fully recover from that tax
increase, and the economy has since alternated between minor
expansions and contractions. The volatility has undermined business
confidence and made it hard to plan for capital investment.
The planned tax increase is part of efforts to safeguard Japan's
social security system and reduce the government's debt burden,
which is among the world's biggest. Mr. Abe has already delayed the
increase once, vowing that it would go ahead next year unless there
is an economic shock on par with the global financial crisis.
The aide also said there was a chance Mr. Abe would call a snap
election for parliament's more powerful lower-house to coincide
with the upper house vote in July. The lower house election needn't
be held until December 2018, but calling it now, while Mr. Abe
remains fairly popular, could enable him to extend his mandate
while providing political cover for delaying the tax rise.
Yet even some lawmakers who supported an earlier delay in
raising the sales tax now say the increase should proceed as
scheduled. A group of them recently recommended to Mr. Abe that he
permit it to go ahead while asking the Bank of Japan to finance
additional government spending, which would help offset the impact
of the tax increase.
"The economy won't get better simply by announcing a delay" in
the tax increase, said a statement from the group, led by lawmaker
Kozo Yamamoto, a member of Mr. Abe's Liberal Democratic Party and
one of the architects of his growth program.
Some of Mr. Abe's advisers have called for a spending package of
up to 10 trillion Japanese yen. They include Satoshi Fujii, a Kyoto
University professor, who said it should include an infrastructure
program aimed at dispersing the administrative and business
functions of Tokyo to other parts of Japan to mitigate the impact
of natural disasters.
"Defeating deflation through growth is the best pathway to
fiscal sustainability," Mr. Fujii said in a recent interview.
Write to Mitsuru Obe at mitsuru.obe@wsj.com and Peter Landers at
peter.landers@wsj.com
(END) Dow Jones Newswires
May 24, 2016 04:55 ET (08:55 GMT)
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