Japan's record budget clears parliament, more COVID-19 spending eyed

TOKYO: Japan's record budget worth almost $1 trillion for the next fiscal year was approved by parliament on Friday, raising speculation over yet more spending ahead in response to the coronavirus pandemic.

The 106.6 trillion yen ($976 billion) budget for the year from April 1 features 5 trillion yen in emergency spending related to the pandemic. That follows three COVID-19 packages worth a combined $3 trillion already rolled out in the current fiscal year.

The world's third-largest economy stands on the cusp of a slump this quarter due to a second coronavirus-related state of emergency imposed from early January through last week in Tokyo and some other areas. The economy last contracted in the April-June quarter last year.

Some analysts anticipate more spending will be announced as politicians clamour for the fiscal tap to be kept wide open while government borrowing costs are in turn kept low by the central bank's money printing.

"Large economic measures will be sought in the fiscal 2021 albeit at a smaller scale than the current fiscal year," said Koya Miyamae, senior economist at SMBC Nikko Securities.

"As the low interest rate policy drags on, the autonomous mechanism won't work in the way that encourages politicians to aim for fiscal reform."

Finance Minister Taro Aso has so far resisted the idea of further spending, saying that the government's immediate focus is to enact the budget and that emergency reserves can be tapped as needed.

"I'm not currently considering another extra budget," Aso told reporters after the budget passage. "I know other countries are raising corporate tax (to restore public finances) but I'm not currently thinking of a corporate or sales tax hike either."

The budget for the coming year hit a record high due to snowballing social security spending to support the rapidly ageing population as well as due to record defence spending to counter threats from North Korea and China.

It also contains spending to help achieve a digital transformation and carbon neutrality, further increasing Japan's debt burden - the heaviest in the industrial world at more than 2.5 times the size of the economy.