Extra budget in Japan to top $30 bln

16:33, November 30, 2009      

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Amid worries that a rising yen and deflation may harm economic recovery in Japan, Deputy Prime Minister Naoto Kan said on Monday that he did not expect the government of the Democratic Party of Japan (DPJ) to be able to stick to its initial plan of limiting an extra budget for the fiscal year to 2.7 trillion yen (about 30 billion U.S. dollars).

The DPJ had allocated money for the extra budget from savings it had made by cutting costs in a stimulus package put forth be the Liberal Democratic Party when it was governing.

Sticking to that figure, however, has looked increasingly difficult in recent weeks as the DPJ has had to deal with a yen that has reached its highest value against the dollar since 1995 and statistics have shown that the nation is likely struggling with deflation.

Kan told media Monday that amid concerns about the economy, key senior figures in the government had agreed that the extra budget is likely to have to rise above the initially planned figure.

The comments came hours after Bank of Japan Governor Masaaki Shirakawa said in a speech that the government and his institution were in agreement that there were risks to the economy that needed to be tackled.

Finance Minister Hirohisa Fujii on Monday also said that there was a possibility that the extra budget would be bigger than the DPJ had initially planned. He also denied commenting that intervention in the foreign exchange markets was unthinkable, as had been reported in the Mainichi Shinbun daily on Monday morning.

The government is currently trying to maintain its promise to be fiscally responsible as a number of factors put pressure on the economy, and making big-spending seem an ever-likelier option for the DPJ.

The government has less tax revenue to spend this year because of the economic crisis that started in the United States last summer. It is also having to try to find a way to deal with bad figures for households, where both earnings and spending are down, which has led to downward pressure on prices.

Meanwhile, the manufacturing sector, which relies heavily on exports, has suffered a loss of sentiment as the yen has risen to its strongest level since 1995, making Japanese products more expensive overseas. Adding to this problem, South Korea's won remains relatively weak, giving electronics manufacturing competitors there, such as Samsung and LG, an edge over their Japanese rivals.

Japan now has to try to maintain a recovery as a series of pressures look increasingly likely to send the economy back into decline and cancel out any gains made in recent months.

Source: Xinhua
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