Japan Pledges More to Prevent Economy From ‘Falling Apart’

By Keiko Ujikane and Toru Fujioka

Dec. 9 (Bloomberg) -- Japan’s government pledged to take further measures to support an economy that reports showed today is in worse shape than analysts predicted.

“We need to implement policies to prevent the economy from falling apart,” Economic and Fiscal Policy Minister Kaoru Yosano told reporters in Tokyo today. Prime Minister Taro Aso instructed his Cabinet to find ways to support workers who are losing their jobs.

Aso, whose party faces elections by September, has already promised to spend 5 trillion yen ($54 billion) on the economy in a move that failed to stem his plunging popularity. His ruling Liberal Democratic Party is tussling over whether to backtrack on plans to balance the budget by 2011 and instead allow the world’s largest public debt to keep swelling.

“Japan is already in a deep recession, so it’s difficult to trigger a recovery with stimulus packages alone,” said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “Since Aso’s popularity is slumping, there’s a sense of crisis among LDP lawmakers that they need to spend more and gain more support from elderly and rural voters.”

Gross domestic product contracted at an annual 1.8 percent pace in the three months ended Sept. 30, the Cabinet Office said today in Tokyo, more than the 0.4 percent reported last month. Economists surveyed by Bloomberg predicted a 0.9 percent decline.

Governments Spend

Governments from India to New Zealand have in the past week announced stimulus packages to stave off a prolonged global recession. U.S. President-elect Barack Obama outlined plans for what he called the biggest public investment in the nation’s infrastructure since the Eisenhower administration of the 1950s.

In Japan, the ruling coalition may propose spending an extra 20 trillion yen in the next three years to spur growth, the Yomiuri newspaper reported today, without citing anyone. Finance Minister Nakagawa said he was unaware of the report.

Yosano said that while the government “shouldn’t hesitate” to spend money on policies that can strengthen the economy, it’s important that taxpayer money isn’t wasted. Aso last week said the government will maintain caps on spending for public works and social security, after a group of LDP lawmakers urged him to abandon the restrictions.

Aso’s approval rating has dropped to below that of his predecessor Yasuo Fukuda when he was forced to step down three months ago. Support for Aso’s Cabinet fell by almost half in the past month to 20.9 percent in a Yomiuri newspaper poll published yesterday, leaving members of the LDP questioning whether the party can win elections under him.

‘May Be Difficult’

“It may be difficult for Aso’s administration to continue,” said RBS’s Yamazaki. “Even if he spends more, it may be difficult to gain enough support.”

The government has limited room for spending as tax revenue falls and the cost of supporting the aging population increases. General spending in next year’s budget will rise 6 percent, the biggest increase since 1979, the Nikkei newspaper reported today, without saying where it got the information.

The public debt burden is more than 170 percent of GDP, according to the Organization for Economic Cooperation and Development, making Japan the most indebted nation in the industrialized world.

Nakagawa said Aso instructed him to develop and implement measures to help people whose employment contracts won’t be renewed next year, forcing them out of company dormitories.

“I’ve heard the problem is that there are some people who have suddenly lost jobs and housing toward the year end,” Nakagawa said. “That shouldn’t happen.” He didn’t say how much would be spent or how the plan would be funded.

Job Cuts

Toyota Motor Corp., Komatsu Ltd. and Sharp Corp. are among the companies that announced job cuts for temporary workers in the past month. The layoffs have left the government scrambling to bolster the safety net for contract and part-time employees.

Nakagawa said a proposal by the ruling coalition to spend 2 trillion yen on employment over three years wouldn’t kick in soon enough because it has to be included in the budget, which needs parliament’s approval.

More jobs may be on the line as companies brace for a global recession. The Bank of Japan’s Tankan business survey next week will probably show sentiment among large manufacturers fell the most in 34 years, economists predict.

“Big Japanese companies are panicking about the global export market,” said Graham Davis, director of the Economist Intelligence Unit in Tokyo. “There’s almost no good news out there.”

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net