Third Time’s the Charm? Yet Another Stimulus Package.

I’ve just been surprised to hear from RS that the English-language media has been talking down chances of a big fiscal push from Japan in the wake of the ongoing G20 process. The Aso administration has been touting a third stimulus package for some time now. There’s been some rumbling about filling the demand gap, which could put the amount as high as 20 trillion yen. On Sunday, two LDP figures, Suga Yoshihide, Deputy Chairman of the Election Strategy Council, and an unnamed member of the Policy Council, put a floor of 10 trillion yen under “freshwater (真水)”, or actual fiscal outlays, as opposed to lending facilities, loan guarantees and other financial facilities that often require little or no additional budgetary allocations*.

Given the ruling coalition’s need to raise public confidence ahead of the Lower House general election and Prime Minister Aso’s desire to remain relevant, it is now inevitable that they will mount a spring offensive for “the largest supplementary budget in history”**. The size of the package means that government scrip—really an imputed tax on financial assets including cash—is no longer out of the question.

* People often discount the monetary value of these official lending facilities that usually comprise the bulk of the announcements. I note that they haven’t done so as Congress, Bernanke and the Obama administration have come forward with TARP and subsequent installments of the U.S. efforts. Moreover, in Japan, where direct and indirect public facilities comprise a significant if small portion of borrowing by small businesses in the best of times, these facilities play a major stabilizing role—many people will argue that this has serious long-term side effects—during economic downturns.

** In the words of Hiroyuki Sonoda, Acting Chairman of the Policy Research Council, addressing the LDP prefectural chapter in Kumamoto on Sunday.