/www.bloomberg.com/ By Yoshiko Matsushita
Tokyo, Oct. 8 (Bloomberg) -- Japan's government may compile an extra spending package, a top spokesman said, a step that may keep the economy afloat and ease the pain from plans to speed write-offs of $430 billion in banks' bad loans.
``Including an extra spending package, Japan could consider a variety of measures'' to spur the economy, Chief Cabinet Secretary Yasuo Fukuda said, according to Jiji Press.
Prime Minister Junichiro Koizumi is under growing pressure to break his self-imposed limit of 30 trillion yen ($241 billion) on sales of new bonds in the fiscal year ending March 31. Koizumi wants to reduce the national debt, which is approaching 140 percent of gross domestic product, the biggest burden among developed nations.
``Of course there will be a supplementary budget -- and the sooner the better,'' said Paul Sheard, chief economist at Lehman Brothers Japan Ltd.
Koizumi didn't deny that an extra spending package may be in the works, saying only that it wouldn't come during an extraordinary session of parliament that starts Oct. 18 and ends Dec. 13. The fiscal year doesn't end until March 31.
Earlier, Koizumi said he was waiting to hear from officials what measures might be possible. That suggests a possible move toward an additional budget because Koizumi until now has said there's no need for more spending, analysts said.
Asked if the government plans to spend state money to help smaller companies and create jobs, Koizumi said: ``All I can do is to make a decision after seeing possible ideas.'' On the issue of selling more bonds this fiscal year, he said: ``We have to see whether we can do it within our 30 trillion yen bond sales cap.''
Bonds
Bonds rose for the first day in five after the government's sale of new 20-year bonds drew the highest demand in 18 months. Bonds had been falling on concern that the government would have to sell more securities to finance an extra budget.
The No. 57 bond, which carries a 1.9 percent coupon and matures in 2022, rose 0.437 to 101.013 as of 5:30 p.m. in Tokyo. Its yield fell 3 basis points to 1.83 percent. A basis point is 0.01 percentage point.
Koizumi is under pressure from his ruling Liberal Democratic Party to step up spending. More bad debt write-offs mean banks may cut lending to deadbeat companies, tipping them into bankruptcy and pushing up unemployment that's already close to a record.
``He'd probably be forced to do it sooner or later,'' said Akio Yoshino, a general manager of investment research at SG Yamaichi Asset Management Co., which manages 1 trillion yen ($8 billion). ``That may not be an easy decision, though, as it basically goes against what's he's been saying so far.''
Creating Jobs
The government will probably compile an extra spending package of 1 trillion yen to 2 trillion yen this year, investors and analysts said. Most of that would be used to help small companies and create jobs, they said.
In December, Japan's Cabinet endorsed an 81.2 trillion yen budget for the fiscal year that started on April 1.
Since 1992, Japan has earmarked more than 100 trillion yen of extra spending in an effort to boost an economy that's had three recessions in a decade.
Members of Koizumi's party and its coalition partners, New Komeito and New Conservative Party, are calling for more spending. New Komeito chief Takenori Kanzaki said Japan needs to boost spending by 3.5 trillion yen.
Falling stocks are adding to the pressure. The Nikkei 225 Stock Average fell to a 19-year low yesterday. That's cutting the value of investments held by banks, reducing their earnings and capital.
The Nikkei rose 0.2 percent to 8708.90 today after gaining as much as 1.3 percent. Stocks pared gains after a report that machinery orders, an early indicator of capital spending, fell 14 percent in August, the biggest drop in more than five years. Economists had expected a 0.6 percent decline.
``If the Nikkei falls to the 8000 to 8500 level, that will raise the possibility of more government spending,'' said Yoshiaki Murakawa, who manages 300 billion yen at SG Yamaichi Asset Management. ``The government may have to increase bond sales this fiscal year.''
Koizumi's government is expected to announce details of a package to fight falling prices and speed up bad-debt write-offs later this month.