By Mure Dickie in Tokyo
Yoshihiko Noda, Japan?s prime minister, has ordered preparation of a new budget worth at least Y2tn ($26bn) to be enacted before the end of the fiscal year in March.
Jun Azumi, finance minister, said the fourth supplementary budget of the year would help businesses left with unsupportable debts by the devastating tsunami that hit the north-east coast on March 11, and also companies suffering the impact of a high yen and floods in Thailand.
Asked about the scale of the new budget, Mr Azumi said it would ?not be less than Y2tn?, adding that the prime minister wanted a draft drawn up by mid-December.
There were no immediate details of how the money would be targeted and how much of it would constitute genuinely new spending, nor of how it will be funded. However, the budget is likely to highlight fiscal pressures on the Japanese government, which has already accumulated gross debts equivalent to more than 200 per cent of gross domestic product.
Tokyo has so far had no difficulty funding such debts domestically and yields on Japanese government bonds remain very low, but Europe?s sovereign debt crisis have fuelled concerns that such stability cannot be taken for granted.
A recent report by the International Monetary Fund said the crisis showed how sentiment toward ?sovereigns with unsustainable fiscal imbalances? could shift.
?Should JGB yields rise from current levels, Japanese debt could quickly become unsustainable,? the IMF said.
Japan?s Diet only last month approved a Y12tn third supplementary budget for the current fiscal year, clearing the way for accelerated spending on relief and reconstruction in hundreds of tsunami-battered communities in the north east.
The government has said its top priority is to step up efforts to promote recovery in areas hit by the tsunami – which killed nearly 20,000 people – and by the resulting crisis at the Fukushima Daiichi nuclear plant.
Mr Noda, seen in Japan as relatively conservative on fiscal matters, has put considerable political effort into ensuring that disaster and stimulus spending does not shake investor confidence in the government?s ability to repay its debts.
His government has pushed through legislation under which special reconstruction bonds will be issued and repaid from temporary increases in income and other taxes that will take effect from January 2013.
Mr Noda is also calling on opposition parties to discuss a progressive doubling of the 5 per cent consumption tax to begin in the middle of this decade.
In a debate in the Diet on Wednesday, Sadakazu Tanigaki, Liberal Democratic party president and a former finance minister, refuses Mr Noda?s requests to join talks or to take a position on a consumption tax hike.
The proposal faces opposition from within Mr Noda?s ruling Democratic party, and the main opposition Liberal Democratic party is also divided, making passage of legislation difficult.
? The Financial Times Limited 2011