Wednesday, Sep. 5, 2012
The gridlock in the Diet threatens to curtail the government's ability to apply fiscal stimulus as the economic rebound falters.
Opposition parties in the Upper House stymied legislation approved by the Lower House on Aug. 28 that would enable the issuance of 38.3 trillion in deficit-financing bonds, seeking to force Prime Minister Yoshihiko Noda into an early election.
The government could hit a spending ceiling as soon as October, according to the Finance Ministry.
The freeze could suspend outlays from this year's budget for the first time, according to Goldman Sachs Group Inc., and limits Noda from proceeding with the supplementary spending package he proposed in July.
With economists increasingly seeing an economic contraction this quarter, the deadlock adds to risks facing global expansion that include a so-called fiscal cliff of spending cuts and tax increases in the U.S. at year's end.
"The impasse on deficit-covering bonds may delay the compilation of a stimulus package and would be a drag for the economy," said Taro Saito, Tokyo-based director of economic research at NLI Research Institute and a past winner of a Japan Center for Economic Research award for accuracy in forecasting. "This is not as severe as the U.S. fiscal cliff but could be said to be Japan's fiscal slope."
Besides the yen's appreciation, Japan's manufacturers are facing diminishing demand abroad, hurt by the European crisis, China's slowdown and stunted American growth. A government report Monday showed that capital spending rose 6.6 percent in the second quarter from a year before, less than the 7.8 percent median estimate in a Bloomberg survey.
The report spurred economists to cut forecasts for second-quarter gross domestic product, initially reported at an annualized 1.4 percent gain. Officials may pare that calculation to 0.9 percent next Monday, according to the median of seven projections in a Bloomberg survey.
Bank of America Merrill Lynch, Credit Suisse Group AG and BNP Paribas SA see a contraction in GDP this quarter, the first slide since back-to-back declines in the first half of 2011, when Japan was hit by the Tohoku earthquake and tsunami.
Continued here:
Diet impasse a threat to growth stimulus
