Japan Studying Stimulus Measures after Dismal GDP

Tokyo, Sept. 8 (Jiji Press)--The Japanese government on Monday fully started considering devising economy-boosting measures following dismal gross domestic product data released the same day. The country's seasonally adjusted GDP in April-June shrank a real 7.1 pct from the previous quarter on an annualized basis, posting the steepest contraction since January-March 2009, shortly after the collapse of U.S. investment bank Lehman Brothers, according to the revised report from the Cabinet Office. The reading was worse than the 6.8 pct drop shown in a preliminary report released last month. The government, among other things, will study compiling a fiscal 2014 supplementary budget that would include public works projects. Eiji Kinouchi, chief technical analyst at Daiwa Securities Co., said that a supplementary budget worth below 4 trillion yen would disappoint financial market players while a budget of over 5 trillion yen would be encouraging. The revised GDP data revealed that personal spending, corporate capital expenditures and exports, all major components, deteriorated from their preliminary readings. The report also showed an increase in inventories reflecting a lack of demand. Prime Minister Shinzo Abe is set to make a final decision in December on whether to raise the consumption tax rate from the current 8 pct to 10 pct in October next year as planned, following the 3-percentage-point hike from 5 pct on April 1 this year. At a press conference on Friday, Finance Minister Taro Aso suggested that the government may draw up a package of measures to shore up the economy in order to clear the way for the additional tax hike. In addition to public works projects, the government and the Liberal Democratic Party-led ruling coalition will study measures to stimulate consumption, sources said. Still, the Finance Ministry hopes to avoid the issuance of additional Japanese government bonds as the government is aiming to reach its interim fiscal reconstruction goal of halving the proportion of the country's primary budget deficit to its GDP in fiscal 2015 from the fiscal 2010 level. Under the circumstances, the government is expected to consider using some 1.4 trillion yen in surplus it generated in fiscal 2013 and an unused portion of funds earmarked for debt servicing to finance measures to be included in the envisaged fiscal 2014 supplementary budget, the sources said. In the run-up to the April 1 consumption tax increase, the government drew up a stimulus package worth about 5.5 trillion yen to help the economy cushion the impacts from the tax hike. If the government compiles a stimulus package of a similar size this time, it would face difficulties achieving the interim fiscal reform goal in fiscal 2015, critics say. The government is intending to eventually turn around the primary budget balance to a surplus in fiscal 2020. END