Japan considers second2001 budget supplement

Shinichi Kishima, Reuters, Tokyo

Japan's government on Tuesday edged closer to an extra dose of spending to rescue the ailing economy less than a week after approving the last one, putting a question mark over Prime Minister Junichiro Koizumi's reform credentials.

In his strongest hint yet at the prospect of a second extra budget, Koizumi said the government was studying ways to keep his pledge to limit new government bond issuance to 30 trillion yen (US$243.7 billion) if it was compiled.

Asked at a news conference whether the cap would be kept after another spending package, Koizumi said: "We are now studying what can be done to keep it."

The extra budget -- the second in a year -- would be aimed at giving the world's second-largest economy more muscle to confront its fourth recession in a decade, with unemployment at a record high, exports flagging and banks awash in bad debts and red ink.

Only last Friday, Japan's Upper House enacted a three-trillion-yen ($24.5 billion) supplementary budget.

Local media reported on Tuesday that Koizumi had already ordered his ministers to prepare a second budget worth two-three trillion yen.

Finance Minister Masajuro Shiokawa denied that report but said the government was discussing various options, while Economics Minister Heizo Takenaka said all options were open.

"Prime Minister Koizumi should discuss (the issue) thoroughly with the ruling coalition's three parties first," Shiokawa said.

Koizumi said later on Tuesday he would hold talks with party chiefs of the ruling coalition on Wednesday. A second extra budget is expected to be on the agenda.

Economists said a second budget looks virtually inevitable, although the burst of deficit spending could jeopardize Koizumi's election vow to cap new debt issuance to under 30 trillion yen a year -- part of the reforms that swept him to power.

"It looks like the prime minister has acceded to the idea of putting forward a supplementary budget but obviously still wants to keep the spending cap. So they're really going through some extraordinary contortions," said Matthew Poggi, economist at Lehman Brothers Japan.