Nakagawa Says Japan May Consider Further Steps to Jolt Economy

By Keiichi Yamamura and Keiko Ujikane

Nov. 18 (Bloomberg) -- Japan's government may consider further measures to jolt the economy out of a recession, Finance Minister Shoichi Nakagawa said.

If the 5 trillion yen ($52 billion) stimulus plan unveiled last month is insufficient, ``we may think beyond it,'' Nakagawa said in an interview with Bloomberg Television in Tokyo today. For now, the government is focusing on implementing the package as well as an earlier plan announced in August, he said.

Leaders from the Group of 20 nations last weekend urged that governments consider fiscal stimulus measures as part of a ``broader policy response'' to the global financial crisis. Japan is the most indebted nation in the industrialized world, limiting the government's ability to spend more money bolstering an economy that shrank in the each of the past two quarters.

``Japan's balance sheet is getting worse with the economy in a recession, but the government needs spending until the economy recovers,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo.

While a supplementary budget was passed last month to pay for 1.8 trillion yen of spending in the first package, the second is being held up as the government considers how to fund it. Ichiro Ozawa, leader of the opposition Democratic Party of Japan, yesterday met with Prime Minister Taro Aso and urged him to quickly submit a second extra budget, the Asahi newspaper reported.

``At the moment we definitely need to avoid the situation'' that last month's stimulus will be held up because of political wrangling, Nakagawa said.

Shrinking Economy

Gross domestic product fell at an annual 0.4 percent pace last quarter after shrinking 3.7 percent in the previous three months, the Cabinet Office said yesterday. The world's second- largest economy last contracted for two consecutive quarters -- the technical definition of a recession -- in 2001.

``The GDP report showed Japan's economy is on downward trend,'' Nakagawa said. It's becoming ``very difficult'' to rely on exports for economic growth so efforts should focus on stimulating spending at home, he said.

``We need to maintain growth in domestic demand, which at this point is slightly positive,'' the minister said.

Japan's Nikkei 225 Stock Average has lost a quarter of its value since Sept. 30, as the prospect of a global recession prompted exporters including Toyota Motor Corp. and Canon Inc. to cut profit forecasts. The Nikkei fell 1.2 percent as of 2:14 p.m. in Tokyo.

Economic and Fiscal Policy Minister Kaoru Yosano said today he's ``not confident'' the economy will expand next year. The Organization for Economic Cooperation and Development predicts Japan will shrink 0.1 percent in 2009, and the International Monetary Fund estimates a 0.2 percent contraction.

Nakagawa said the government maintains its pledge to balance the budget by the year starting April 2011, though the immediate priority is to steer the economy toward a recovery. Japan's public debt exceeds 180 percent of GDP, the OECD estimates.

The next G-20 gathering is scheduled to occur before the end of April. Japan ``will contribute in every way possible,'' Nakagawa said.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Keiichi Yamamura in Tokyo at kyamamura@bloomberg.net;