Japan’s Budget Gets Mixed Reviews

Japan’s midyear supplementary budget has been the focus of more international attention this year than possibly any time before.

In economists’ circles, there is a widely held belief that Japan must achieve a 4% annual growth rate of gross national product if it is to absorb more imports--as its trading partners, especially the United States, want it to do--and to give its recession-plagued, export-oriented industries a chance to retool for the domestic market.

The midyear supplementary budget was unveiled last Friday by Japanese officials, who said it will generate domestic demand and spur the economic activity needed to create demand for imports.

The overall aim of such moves is to reduce the trade surpluses that Japan has with so many other countries.

“We will be contributing to the world economy by curtailing our exports,” said an official of the Economic Planning Agency, which designed the spending package.

Producing for Home Market

The official said he foresaw the budget’s $23 billion in outlays quickly spreading throughout the economy, generating the kind of business activity that will keep Japan’s exporters busy producing for Japanese consumers and out of foreign markets.

Among other things, the measures call for an easing of housing regulations and making available a greater amount of money to lend to prospective homeowners. The result, the official said, is expected to be an increase of 30,000 new houses over the 510,000 already planned this year.

Officials say that almost all of the funds will go to public works projects, although very few of the projects have been disclosed. In fact, the only category of public works project that has been clearly defined is disaster relief.

As one official put it, “we can be certain that typhoons and earthquakes strike our islands with regularity.”

There are those, however, who have doubted whether disaster spending alone is sufficient to maintain Japan’s annual GNP growth. Among them is U.S. Treasury Secretary James A. Baker III.

Meeting with Baker

When Finance Minister Kiichi Miyazawa flew to San Francisco earlier this month for a conference with Baker, the rumor in Tokyo was that the secretary had called the meeting in order to press Miyazawa for Japan to achieve the 4% growth. The contents of the discussions have not been made public.

“The world is watching us,” Prime Minister Yasuhiro Nakasone was quoted as having said the day the supplementary budget was presented to him. “Japan must do its best,” he added.

But when the prime minister was asked if Japan will achieve 4% GNP growth in the next six months, he would say only that Japan is taking sure steps in that direction.

A bureaucrat, who asked not be be identified, was equally coy. “Our official position is that we will reach 4%,” he said. Asked for an unofficial opinion, he just smiled.

The government’s view is that the $23-billion supplementary budget, the biggest so far, will by itself add 1% to the Japanese GNP. This should be enough, according to the official view, to raise Japan above the 4% figure.

On the whole, Japanese media and business opinion on the package has been skeptical. The Yomiuri newspaper called the package “vague” in its explanations of where it hopes to obtain the money for the public works projects. For example, in reference to the equivalent of more than $9 billion for public works projects, the budget says, “as for obtaining the necessary funds, further examination will be required at a later stage.”

The Japan Economic Journal quotes a study by a think tank that says that even if all $23 billion is spent this year, the decrease in Japan’s estimated $60-billion annual trade surplus would amount to only $600 million this year and $1.6 billion next year.

Neither is there much agreement agreement within the Japanese government as to where the funds will come from to pay for the measures projected by the budget. Nakasone has committed himself to eliminating reliance on borrowing. All the same, there is plenty of talk of floating special “construction bonds.”

The Finance Ministry, however, is opposed to new debts and suggests instead that the projects be started but that funds should be forthcoming only in the following year.

If that path is resorted to, however, money will not actually enter the economy until the following year, delaying the effect of the budget and making it impossible to achieve a 4% growth rate.

In order to spread the benefits of the weak dollar and low oil prices, the government will offer incentives to firms that have been helped most by these two factors to engage in projects of their own. Electricity and gas companies are among those being approached by the government.

Japanese planners hope that the projects started by the utility firms will prove to be of benefit to firms that have been hurt by the high yen.