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 Friday, 20 December, 2002, 08:15 GMT
Japan reveals budget plans
Men look at a stock board in Tokyo
Japan's market is full of technically bankrupt firms
Japan's finance ministry has unveiled a draft budget which increases spending for the first time in two years.

However, the finance minister said belt-tightening cuts to public works spending would take place and that spending was "under control".

The budget envisages record government borrowing on the international bond market.

Japanese prime minister Junichiro Koizumi was elected last year on a pledge to sort out the malaise gripping the world's second biggest economy by cutting wasteful spending and curbing debt to boost growth.

More borrowing

Japan's economic problems were highlighted on Friday by a public row between the finance and economics ministers over whether the yen is too strong against the dollar, possibly hurting exports.

The draft budget totals 81.79 trillion yen ($678bn; 424bn) for the fiscal year starting in April 2003, a rise of 0.7% on the current year.

The spending plan will be partly financed by issuing 36.45 trillion yen in new government bonds on global capital markets in 2003/04.

That represents a 21% increase on the amount of new bond issues in the previous 2002/3 draft budget.

Mr Koizumi's government has pledged to halt Japan's cycle of high public borrowing and spending.

In spite of this, it scrapped its 30bn-yen limit on bond issuances for this year.

But Finance Minister Masajuro Shiokawa said the draft budget meant Japan's public debt would be trimmed to 137% of gross domestic product (GDP) by March 2004 after ballooning to 141% at the end of the current year.

Promised spending cuts

The budget does shave spending on public works - such as the giant infrastructure projects which litter Japan in a failed bid to kick start the economy - by 3.7% to 8.91 trillion yen.

"We have shifted parts of spending on public works to areas needed in the next generation," a Finance Ministry official said.

Social welfare funds and spending on developing new technologies are to rise.

The budget assumes tax revenues will dive 10.7% because of sluggish economic growth.

Many of the higher spending targets are for payments the government is legally obliged to make, such as those to unemployed workers.

Yen row

Meanwhile, two government ministers have publicly disagreed about whether it might be necessary to intervene to weaken the yen.

Recent rises in the yen, caused more by the weakness of the dollar than any positive mood towards Japan Inc, have made Japanese exports more expensive.

Mr Shiokawa published a newspaper article on Friday saying the yen was overvalued, though he made clear that intervention to weaken it was not imminent.

Mr Shiokawa said one dollar should fetch about 150 yen, not about 120 as now, adding, "We may have to take action."

But Finance and Economics Minister Heizo Takenaka said on TV on Friday that "a weak yen target is not necessary" and defended existing measures as adequate.

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