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Japan unveils record budget to bolster economy

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[December 20, 2008]  TOKYO (AP) -- Japan's budget will balloon to a record high next year as the government embarks on a spending spree to battle an ever-deepening recession.

In a draft budget released Saturday, the Finance Ministry suggested an increase of 6.6 percent to 88.5 trillion yen ($990.9 billion) for the next fiscal year - the biggest ever figure in an initial proposal.

InsuranceThe world's second-largest economy fell into a recession in the third quarter, and the signs since then point toward more misery ahead. The latest outlook by the Cabinet Office projects Japan's economy to shrink this fiscal year and manage only flat growth the following year.

The budget proposal said general spending will rise to 51.7 trillion yen ($578.9 billion) in the year starting April, even though tax revenue is projected to fall 13.9 percent to 46.1 trillion yen ( $516.2 billion).

As a result, Japan will see its primary budget deficit jump to more than 13 trillion yen ($145.6) from 5 trillion yen ($56 billion) this year, and will boost bond issuances by 31.3 percent to cover the revenue shortfall.

The expansion is likely to derail Tokyo's efforts to slim down toward its goal of balancing the budget by 2011. But Prime Minister Taro Aso, facing plummeting popularity ratings, has made it clear that this is no time for fiscal discipline.

On Friday the central bank cut its key interest rate to 0.1 percent, joining the U.S. Federal Reserve in pushing borrowing costs close to zero. And in its gloomiest assessment this year, the Bank of Japan cited the harsh impact of tumbling exports, weakening domestic demand, job losses and growing credit crunch.

"Under these circumstances economic conditions have been deteriorating and are likely to increase in severity for the immediate future," it said in its statement.

The prime minister has responded by introducing a slew of fiscal stimulus measures, including a 27 trillion yen ($302.3 billion) package in October and a 43 trillion yen ($481.5 billion) plan earlier this month.

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The Cabinet on Saturday approved a 4.79 trillion yen ($53.6 billion) supplementary budget for this fiscal year through March to fund some of the stimulus steps. Among Aso's measures are expanded credits for small businesses, lower highway tolls and a cash payout to every household to spur spending.

Still, it may not be enough to trigger a turnaround for Aso and his Liberal Democratic Party, which looks increasingly likely to lose its decades-long grip on political power.

The embattled Aso has repeatedly come under fire for verbal gaffes and a lack of leadership through the global economic crisis. His approval rating has plunged to about 20 percent in the three months since taking office.

The draft budget is scheduled for Cabinet approval on Wednesday and will likely be submitted to parliament in January.

[Associated Press; By TOMOKO A. HOSAKA]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.



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