Japan's planned economic package to help ease the pain from higher oil and food prices could be worth 2-3 trillion yen ($18-27 billion), the ruling Liberal Democratic Party's (LDP) policy chief said on Monday.
The government aims to compile a package this month to help businesses and individuals cope amid heightening fears of a recession, but speculation of large-scale public spending and debt issuance has prompted concern that fiscal reform efforts could be derailed.
Prime Minister Yasuo Fukuda and senior cabinet members have agreed to start preparing for a possible extra budget to help finance the package, but its size and funding have yet to be finalised. Japanese media reported on Saturday that the package would be worth 8 trillion yen, although that was unlikely to be all spending and could span budgets over two years.
The government has also said the package will focus on measures to ease the pain for those hit by high energy and food prices, and will be different from past measures that focused on stimulating demand through increased public spending.
LDP policy chief Kosuke Hori said in a speech in Tokyo on Monday that the package could total up to 2-3 trillion yen, although he did not specify whether he was referring to the government's spending or the total size of the package including other non-spending measures such as special loan facilities. The comments came after Akihiro Ota, the leader of the New Komeito party, the junior partner in the ruling coalition, told Reuters last week the government should spend more than 1 trillion yen on the measures.
Hori also said the government could end up considering debt-financing bonds as a last resort, although such steps were not desirable. Some ruling party officials have been suggesting that the government could use part of reserves held in special accounts - so-called "hidden treasure" - to fund the package so as to avoid issuing new debt-covering bonds.
The government has tapped into such funds before, transferring 1.8 trillion yen from a special account for foreign currency assets acquired through market intervention to help finance the general account budget for the current fiscal year to next March.
Still, many bond analysts think an extra debt issuance of 1 to 2 trillion yen would not have a big impact on the Japanese government bond market, as the government plans to sell about 105 trillion yen of JGBss to markets this fiscal year During the 1990s, Tokyo compiled a series of economic packages that centred on heavy public works spending as the economy languished in the aftermath of a stock and property bubble, which led public debt to snowball. Many economists think such large-scale spending did little to boost the economy.