Aso’s Stimulus Won’t Spur Japanese Recovery, LDP Lawmaker Says

By Keiko Ujikane and Takashi Hirokawa

Dec. 3 (Bloomberg) -- Japanese Prime Minister Taro Aso’s stimulus package won’t be enough to jolt the economy from a recession and more should be spent on public works, a lawmaker from the ruling Liberal Democratic Party said.

“The global community is facing a common challenge of how to make up for a shortage of demand,” Takeshi Noda, head of the LDP’s panel for revitalizing rural areas, said in an interview in Tokyo on Dec. 1. The stimulus “includes measures to spur demand, but no one really believes they are enough.”

Aso is losing the support of voters and lawmakers within his own party over his handling of the world’s second-largest economy. Noda, 67, called on the prime minister to loosen spending restrictions and backtrack from cutting the largest debt burden in the industrialized world.

“The disarray within the ruling camp signals Aso’s political power and influence are waning,” said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo. “Aso is becoming a lame duck.”

The approval rating for Aso’s Cabinet plunged 17 percentage points in the past month to 31 percent, a survey by the Nikkei newspaper showed this week. The disapproval rating climbed 19 points to 62 percent, and respondents cited dissatisfaction with Aso’s stimulus and management of the economy, which shrank in each of the past two quarters. No margin of error was provided.

Economic and Fiscal Policy Minister Kaoru Yosano said yesterday that the 5 trillion yen ($53 billion) package announced by the prime minister in October would be “no instant panacea.” Former economy minister Hiroko Ota said last month that she would have considered resigning if she had to implement the policy.

LDP’s Plea

LDP lawmakers yesterday urged Aso to loosen spending caps to bolster growth. Aso said the government will keep setting a ceiling on the budget, while adding that “given current economic conditions” other options may be pursued.

Noda said Aso should abandon goals of trimming public works spending by 3 percent and containing increases in social welfare costs, pledges made by then Prime Minister Junichiro Koizumi in 2006 as a step toward balancing the budget in five years. Koizumi’s successors, Shinzo Abe and Yasuo Fukuda, achieved the cuts when they compiled budgets for 2007 and 2008.

“Koizumi’s legacy of balancing the budget by cutting spending is on the verge of collapsing,” Noda said. “The pressing priority for Japan is to prevent the economy from deteriorating further.”

Roads, Buildings

Koizumi’s predecessors emphasized spending on infrastructure to spur growth after a decade of economic stagnation, pushing Japan’s public debt to more than 1.7 times the size of the economy. Noda, a former construction minister who has served 12 terms in the lower house, said more should be spent on “necessary” roads in rural areas as well as disaster preparation, such as reinforcing buildings for earthquake resistance.

“Creating public works to maintain jobs is probably not the right solution,” said Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. Fink said the government should relax rules on investment to attract money from abroad, and find ways to make the shrinking workforce more productive.

Economy Minister Yosano told the Financial Times this week that investing in high-speed railways would be a better option than the favored target of erecting public buildings because the latter requires additional spending on maintenance. He said the government should spend more on unemployment benefits to offset the social costs of joblessness, the FT reported Dec. 1.

“If they’re simply saying they want to increase public works spending for the sake of it, that’s a risky idea,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.

Noda, who also advises the LDP’s tax panel, said the government won’t be able to balance the budget by 2011 unless it raises the country’s sales tax from the current 5 percent. The economy would have to resume expanding before the levy is increased, he said.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net.