Political risks to watch in Japan

Monday, 13 February 2012 13:50

TOKYO: Japan's government used accounting sleights of hand to compile next fiscal year's budget without boosting borrowing needs, but will struggle to pass budget-enabling bills and proposed sales tax hikes aimed at shoring up its stretched finances.

Japan is able to finance nearly all of its fiscal deficits at home and so far has avoided funding strains that are plaguing the euro zone, even though its debt is double the size of the $5 trillion economy and the highest among industrial nations.

But Prime Minister Yoshihiko Noda's cabinet will have trouble passing the budget before the April 1 start of fiscal 2012/2013 as the opposition controls the upper house and can delay the budget and block enabling bills.

Political haggling has delayed spending on post-quake reconstruction and some economists have warned that Japan's economy could slip back into a recession before rebuilding starts in earnest.

GDP data released in mid-February showed output shrank by 0.6 percent in fourth quarter of 2011, much more than expected. The grim data will make Noda's job of persuading the public that the economy is strong enough to withstand a doubling of the sales tax even more difficult.