Labor union members shout slogans during a rally in front of the headquarters of Keidanren, Japan’s largest business group in Tokyo, Wednesday

Japan may spend about ¥15 trillion (US$150 billion) in its next economic stimulus package, according to a ruling Liberal Democratic Party legislator involved in shaping the plan.

Aso must call elections by September as Japan heads for its worst recession since World War II, with companies from Toyota Motor Corp. to Sony Corp. slashing production and firing workers. The stimulus will focus on the job market, credit to companies, energy-efficient technology, support for regions and welfare, Finance Minister Kaoru Yosano said this week.

“Japan has had the worst economic deterioration among developed nations, and that’s pushed the government to come up with a package of this size,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. The measures “might actually help the economy, unlike previous ones.”

Bond yields rose Wednesday toward the highest since November after Yosano said issuing debt to fund the spending was “unavoidable.” Aso told reporters Wednesday that the government may need to sell bonds to pay for the measures, without specifying any amounts. The yield on the benchmark 10-year bond climbed 2.5 basis points to 1.45 percent at the close in Tokyo.

Debt burden

The government’s ability to revive the economy is constrained by its debt, which is already the world’s biggest and is likely to spiral to 197 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development.

“The government needs to make it clear that how they’re going to fund the package, otherwise yields will keep rising,” Nishioka said.

The Finance Ministry will sell debt to pay for most of the spending, Kyodo News reported, without saying where it got the information. Some ¥3 trillion will come from so-called special accounts and ¥1 trillion from reserves, Kyodo said.

The package will be the largest ever for a single year, surpassing former Prime Minister Keizo Obuchi’s ¥8.5 trillion stimulus during the Asian financial crisis in 1998.

The LDP lawmaker said Aso’s plan is likely to total ¥50 trillion when including financial initiatives such as funds set aside to help companies get access to funding.

Plunging exports

Reports Wednesday painted a mixed picture of the world’s second-largest economy.

Exports plunged a record 50.4 percent in February from a year earlier, the Finance Ministry said, and another survey showed bankruptcies rose to a six-year high in March. The Bank of Japan said the economy was deteriorating “significantly.”

Meanwhile merchant sentiment surged to the highest since July, the Cabinet Office said, indicating factory production may recover in coming months, according to Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo.

“One-shot spending for a single year may not be enough to bring Japan’s economy back to a sustainable recovery,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. “The government may need to spend more after the election.”

Aso’s approval rating, which fell below 10 percent less than two months ago, has rebounded as he prepares sanctions against North Korea after it launched a missile over Japan earlier this week. He has also benefited from a drop in support for Ichiro Ozawa, leader of the opposition Democratic Party of Japan, whose top aide was charged with campaign-funding violations.

The prime minister’s support rating rose 9.4 percentage points from last month in a Nippon Television survey that was completed April 5, the day North Korea fired its rocket.

Source: Bloomberg