Japan May Run Out of Extra Budget Funds

Japan’s government may run out of the extra budget funds needed for spending to spur demand and bolster growth while capping bond sales.

Prime Minister Naoto Kan will keep new debt sales at 44.3 trillion yen ($534 billion) in 2011 to finance a record budget of 92.4 trillion yen in the year starting April 1, according to a proposal approved by the Cabinet in Tokyo yesterday. Part of that budget will be paid for by about 7 trillion yen from unused accounts and reserves, funds that the finance minister said are disappearing.

Investors may become more concerned about Japan’s commitment to reduce its debt burden, about twice the size of gross domestic product, as its revenue sources decrease, said Credit Suisse Group AG. Increasing taxes to boost revenue may not be feasible because that risks a further decline in Kan’s popularity and may hurt the government’s efforts to stimulate demand hit by the yen’s climb and deflation.

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