Identifier
Created
Classification
Origin
09TOKYO2819
2009-12-09 23:22:00
CONFIDENTIAL
Embassy Tokyo
Cable title:  

HATOYAMA CABINET ANNOUNCES JPY24.4 TRILLION

Tags:  ECON EFIN JA 
pdf how-to read a cable
VZCZCXRO1903
OO RUEHFK RUEHKSO RUEHNH
DE RUEHKO #2819/01 3432322
ZNY CCCCC ZZH
O 092322Z DEC 09
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8101
INFO RUEHFK/AMCONSUL FUKUOKA IMMEDIATE 7840
RUEHNH/AMCONSUL NAHA IMMEDIATE 0189
RUEHOK/AMCONSUL OSAKA KOBE IMMEDIATE 1651
RUEHKSO/AMCONSUL SAPPORO IMMEDIATE 8346
RUEATRS/TREASURY DEPT WASHDC IMMEDIATE
RHEHAAA/NSC WASHDC IMMEDIATE
RHEHAAA/WHITE HOUSE WASHINGTON DC//USTR// IMMEDIATE
C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 002819 

SIPDIS

STATE FOR EEB AND EAP/J
NSC FOR DANNY RUSSELL AND JIM LOI
USTR FOR BEEMAN, LEE AND HOLLOWAY
TREASURY FOR WINSHIP AND FOSTER

E.O. 12958: DECL: 12/09/2019
TAGS: ECON EFIN JA
SUBJECT: HATOYAMA CABINET ANNOUNCES JPY24.4 TRILLION
ECONOMIC POLICY PACKAGE

REF: TOKYO 2464

Classified By: Financial Attache Robert Kaproth, Reasons 1.4 (b) and (d
).

SUMMARY
-------

C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 002819

SIPDIS

STATE FOR EEB AND EAP/J
NSC FOR DANNY RUSSELL AND JIM LOI
USTR FOR BEEMAN, LEE AND HOLLOWAY
TREASURY FOR WINSHIP AND FOSTER

E.O. 12958: DECL: 12/09/2019
TAGS: ECON EFIN JA
SUBJECT: HATOYAMA CABINET ANNOUNCES JPY24.4 TRILLION
ECONOMIC POLICY PACKAGE

REF: TOKYO 2464

Classified By: Financial Attache Robert Kaproth, Reasons 1.4 (b) and (d
).

SUMMARY
--------------


1. (SBU) On December 8, the Hatoyama Cabinet finalized a new
economic policy package, entitled "Emergency Economic
Measures for Reassurance and Economic Growth Tomorrow". This
is the first economic policy package under the Hatoyama
administration, but is the fifth of its kind since the onset
of the global financial crisis. The headline figure of
JPY24.4 trillion (USD271 billion, or 4.9 percent of GDP)
includes JPY10.4 trillion (USD116 billion) in financial
measures, and a combined JPY14 trillion (USD156 billion) in
fiscal spending and demand created through environmental
incentive programs. The economic package does NOT contain
major tax cuts or large-scale investment spending. Rather,
it mainly focuses on expanding existing government programs
to help the financing of small businesses, provide employment
assistance, and encourage the purchase of environmentally
friendly goods and energy-efficient homes. (Note: The
package was delayed by four days because the People's New
Party, a junior coalition party headed by Financial Services
Minister Kamei, demanded higher fiscal spending. Kamei
ultimately won an increase in the headline figure of JPY0.1
trillion (USD1.1 billion) from the initially envisaged
JPY24.3 trillion (USD270 billion). End Note.) End Summary.

REAL IMPACT
--------------


2. (C) The FINATT estimate of the package's "real water"--the
additional final demand created by the package--is JPY1.8
trillion (USD20 billion, or 0.4 percent of GDP). However,
much of this so-called "real water" is actually generated by
redirecting government spending, with new spending measures
financed by cuts in expenditures already authorized in the
FY09 regular and first supplemental budgets. The Cabinet
Office estimates that proposed reductions in the first
supplemental budget for FY09 would reduce GDP growth by about
0.2 percentage points. Thus, "real water" on a net basis is
at most 0.2 percent of GDP. (Note: This means that the DPJ

has essentially maintained the same overall level of fiscal
support as the LDP in FY09, though the composition of
spending has shifted somewhat from the "wasteful" items cut
from the first FY09 supplemental budget to the measures
included in this package. End Note.)

PACKAGE - KEY FIGURES (JPY TRILLIONS)
--------------

Scale of FINATT
Projects GOJ Estimate
(Headline Fiscal of "Real
Figures) Spending Water"
-------------- --------------

FISCAL SPENDING
MEASURES 14.0 6.0 1.8
Employment Support 0.6 0.6 0.3
Environmental Support 4.1 0.8 0.4
Business Support 8.2 0.5 0.3
Public Health Support 1.0 0.8 0.4
Local Government Public
Works Grants 0.5 0.5 0.4
Revenue Sharing with
Local Governments 3.0 3.0 0.0

FINANCIAL MEASURES 10.4 1.2 0.0
Government Backed Loans
and Guarantees 10.4 1.2 0.0

-------------- --------------

TOTAL 24.4 7.2 1.8
Percent of GDP 4.9 1.5 0.4


TOKYO 00002819 002 OF 004


PACKAGE - FUNDING
--------------


3. (U) The Hatoyama Cabinet will formulate a second FY09
supplemental budget in late December, and submit it to the
regular Diet session in January, in order to finance the
package.


4. (SBU) New expenditures will be funded mostly by cuts in
previously authorized expenditures. The first FY09
supplemental budget, compiled by the Aso Cabinet and approved
by the Diet in late May, contained JPY14.7 trillion in new
spending. In mid-October, the Hatoyama Cabinet decided to
suspend JPY2.9 trillion of spending from the first
supplemental, JPY2.7 trillion of which will be used for the
new package. (The remaining JPY0.2 trillion is not usable
during FY09 due to accounting issues.) The Hatoyama Cabinet
also plans to use more than JPY1 trillion from the FY09
regular budget, including debt cost saving and using various
rainy-day reserve funds.


5. (SBU) However, additional JGB issuance is inevitable given
a tax revenue shortfall of roughly JPY9 trillion (USD100
billion) from the initially projected JPY46.1 trillion
(USD512 billion) in the FY09 regular budget.

PACKAGE - OUTLINE
--------------


6. (U) The headline figure of JPY24.4 trillion (USD271
billion) includes JPY10.4 trillion (USD116 billion) in
financial measures, and roughly JPY14 trillion (USD156
billion) in fiscal spending measures and demand created
through environmental purchase incentive programs.


7. (SBU) Financial measures center on strengthening support
for corporate financing by expanding government
loan-guarantee programs by JPY6 trillion (USD67 billion),and
lending by government-affiliated financial institutions by
JPY4 trillion (USD44 billion).


8. (SBU) The fiscal spending initiatives include JPY0.6
trillion (USD6.7 billion) in employment measures, and JPY0.5
trillion (USD5.6 billion) in grants to local governments for
public investment.


9. (C) The headline figure also includes (and is inflated by)
roughly JPY12 trillion (USD133 billion) in projected consumer
sales generated by the environmental purchase incentive
programs.


10. (U) The package contains about JPY3 trillion (USD33
billion) in tax revenue sharing with local governments. With
smaller than projected tax revenues, revenue sharing with
local governments would normally fall by JPY3 trillion.
However, the Hatoyama Cabinet decided that the central
government would cover in full the reduction in revenue
sharing. (Note: Under the revenue sharing program, fixed
proportions of revenues from the five taxes--personal income,
corporate, liquor, tobacco, and consumption taxes--are
allocated to local governments. End Note.)

INDIVIDUAL POLICY MEASURES
--------------

Employment
--------------


11. (U) The eligibility conditions for the government
employment adjustment subsidy program will be eased from
December 2009. For example, money-losing companies whose
production volumes fall by more than 10 percent from levels
of two years before will be eligible for the program. This
program is designed to help firms retain employees, by
providing subsidies to employers who adopt measures such as
temporary paid leave or in-house job training.


12. (U) Public employment placement offices, called "Hello
Work", will provide "one-stop service" to poor people seeking
both employment and housing.

TOKYO 00002819 003 OF 004




13. (U) To help new graduates seeking work, the number of
counseling staff at colleges and universities will be
increased.

Environment
--------------


14. (U) The current incentive program designed to encourage
consumers to purchase energy-efficient electric home
appliances will be extended by nine months until end-
December 2010. Under this program, consumers earn so-called
"eco-points" when they purchase energy-efficient
refrigerators, air conditioners, and televisions. These
points, equivalent to 5 percent of the sales price, can be
exchanged for shopping coupons and other products.


15. (U) The current subsidy program to encourage the purchase
of environmentally friendly cars, such as hybrid and electric
cars, will be extended by six months until end- September

2010. Under this program, buyers can receive JPY100,000
(USD1,136) in subsidies for qualifying standard-sized cars,
and JPY50,000 (USD568) in subsidies for mini-vehicles with an
engine size of less than 660cc. Furthermore, those who buy
new qualifying vehicles after discarding cars that are at
least 13 years old will receive additional subsidies of
JPY150,000 (USD1,700) for standards sized cars and JPY75,000
(USD850) for mini cars.


16. (U) The government will create a new incentive program to
encourage the construction and renovation of homes to save
energy. Homeowners will earn "eco points" (shopping points)
when they improve energy efficiency with renovations such as
installing double windows and heat insulating walls.


17. (U) The government-backed Japan Oil, Gas and Metals
National Corporation will be allowed to provide capital to
private companies to procure rare metals. The government
will also provide guarantees for loans to develop and produce
rare metals.


18. (U) "Green commuting days" will be created to lower
carbon dioxide emissions.

Supporting Businesses (Financial Measures)
--------------


19. (U) To facilitate financing for small and medium-sized
enterprises (SMEs),the government will: (a) raise the
ceiling on the government- affiliated credit guarantee
associations' loan guarantee program by JPY6 trillion (USD67
billion) to JPY36 trillion (USD400 billion),(b) expand the
range of business sectors eligible for this program, and (c)
extend the program by one year until the end of March 2011.


20. (U) The Government will also raise the ceiling on the SME
low-interest "safety net lending program" administered by
government-backed financial institutions, such as the Japan
Finance Corporation (JFC),by JPY4 trillion (USD44 billion)
to nearly JPY20 trillion (USD222 billion). It will also
extend the program by one year until the end of March 2011.


21. (U) For mid-sized and large companies, the low-interest
"crisis response loan programs" administered by the
government-backed Development Bank of Japan (DPJ) and Shoko
Chukin Bank will be extended one year to the end of March

2011.


22. (U) For companies that plan to make long-term plant and
equipment investments, interest rates of loans under the
"crisis response loan programs" will be reduced by 0.5
percentage points in the two-year period.


23. (U) To enhance housing demand, the discount rate on
interest of the government-backed Japan Housing Finance
Agency's popular 35-year mortgage loans will be expanded from
the present 30 basis points, to 100 basis points for the
first ten years. As a result, the interest rate will be
reduced from 2.6 percent to 1.6 percent. This rate will be
available until the end of December 2010, but only for

TOKYO 00002819 004 OF 004


earthquake- resistant, barrier-free homes for the elderly,
and energy-efficient homes.

Easing Anxiety in People's Lives
--------------


24. (U) The program to suspend increases in premium payments
for public medical insurance for low-income elderly people
aged 75 and older will be extended through FY10. Also, the
upper limit on co-payments by low-income elderly poeple as
outpatients will be halved next year from JPY8,000 (USD89) to
JPY4,000 (USD44) per month.


25. (U) A domestic production system of H1N1 vaccine
sufficient to meet the needs of all Japanese residents will
be established within six months.

Supporting Localities
--------------


26. (U) Local governments will receive approximately JPY3
trillion (USD33 billion) under the revenue sharing program,
as explained above. Local governments can use funds from the
revenue sharing program at their own discretion.


27. (U) Local governments will receive JPY0.5 (USD5.6
billion) in grants for public works projects, such as
repairing aging bridges, and placing power lines underground.

Enhancing People's Potential
--------------


28. (U) The unification of (a) kindergartens administered by
the education ministry and (b) nursery schools administered
by the welfare ministry will be decided by the end of June

2010. Necessary legislation will be submitted to the
ordinary Diet session to be convened in January 2011. The
objective is to reduce the number of children waiting to get
into such facilities and encourage women to enter the work
force.


29. (U) The government will consider relaxing regulations on
the ratio of green space in building large factories by
classifying solar panels as "green space".
ROOS