Japan Plans $51 Billion Stimulus; Election on Hold

By Sachiko Sakamaki and Toru Fujioka

Oct. 30 (Bloomberg) -- Japan's Prime Minister Taro Aso promised to pump 5 trillion yen ($51 billion) into the economy to help households and small businesses, and indicated he would delay elections until the global financial crisis subsides.

``We're facing a storm that comes once in every 100 years,'' Aso said in a televised speech in Tokyo today. ``The overwhelming majority of the public want policies and economic measures more than politics.''

Japan's Finance Ministry yesterday cut its economic assessment in all of the nation's 11 regions for the first time in a decade amid the prospect of a global recession. Slumping growth in the world's second-largest economy has forced Aso to reconsider plans to call elections that would risk ending his party's more than 50-year grip on power.

``These are more election measures than economic measures,'' said Kazutaka Kirishima, an economics professor at Josai University northwest of Tokyo. ``Giving out cash won't spur consumption much.''

Japan's second stimulus package since August is equivalent to about 1.2 percent of annual gross domestic product. The U.S. in February allocated $168 billion, or 1.2 percent of its annual GDP, to bolster growth. In the U.S., momentum for fresh measures is building after an the earlier stimulus package failed to prevent a jump in the unemployment rate to a six-year high and the longest slump in retail sales since at least 1992.

Cheaper Tolls

Aso, 68, pledged 2 trillion yen in financial assistance for families and 1 trillion yen for local authorities. The government will also help ensure small businesses can access loans, and offer tax relief on mortgages, he said.

Under the plan, some of which requires parliamentary approval, a household of four would get a 60,000 yen payment by March. The government will also cut highway tolls to help reduce freight costs and boost local economies. Aso said he plans to increase the 5 percent sales tax three years from now, the deadline the government has set for balancing the national budget.

``While Japan's financial system remains relatively sound there will surely be an impact on the real economy,'' Aso said. ``I'll decide when to dissolve parliament at the appropriate time.'' Japan's lower house must hold an election by September 2009.

Internal Poll

The LDP's own internal poll predicted the party would lose a lower house election held now, the Nikkei newspaper said today. The opposition Democratic Party of Japan would take more than 240 of 480 seats, the newspaper said, without saying how it obtained the poll.

Approval for Aso's Cabinet fell 9 percentage points to 36 percent in a Mainichi newspaper survey published Oct. 20 while the disapproval rating rose 15 points from last month to 41 percent. When asked which party the respondents want to win in the next elections, 48 percent chose the DPJ compared with 36 percent who favored the LDP. The paper didn't provide a margin of error.

Aso had intended to ``ask the public's will'' and call an election at the start of the parliamentary session that began Sept. 24, he wrote in an article in the Bungei Shunju magazine published this month. Lawmakers had been preparing for an election at the end of November.

Prioritize Economy

The premier backtracked earlier this month, saying he intended to prioritize ``economic measures'' over dissolving the lower house. Parliament approved a 1.8 trillion yen supplementary budget to fund the first stimulus package on Oct. 16.

The new spending plan is tailored to help households and small and mid-sized companies because consumer sentiment is at the lowest level on record. Confidence among Japan's small and medium-sized companies has dropped to a decade low, the Shoko Chukin Bank reported yesterday.

The yen rose to a 13-year high last week, eroding the value of the nation's exports. Japan's benchmark Nikkei 225 Stock Average has fallen 41 percent this year and slumped to the lowest level in 26 years this week, on concern the global economy will enter a recession and crimp world trade.

Squeezed company earnings are likely to cause tax revenue to ``fall significantly,'' Vice Finance Minister Kazuyuki Sugimoto said this month. The government is bidding to balance the budget by 2011. Economic and Fiscal Policy Minister Kaoru Yosano has said Japan should maintain that target although it's becoming more difficult as the economy slows.

Aso's spending choices are constrained because the nation's public debt, at about 180 percent of gross domestic product, is the highest among industrialized nations.

``Japan is limited in what it can do. The U.S. is like a giant elephant in comparison,'' said Masaaki Kanno, chief economist at JPMorgan Chase & Co. in Tokyo. ``In the end, the economy will just have to wait for the U.S. to recover, while being careful not to get trampled underfoot.''

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net