Japan extra budget debate delayed

By CNN's Alex Frew McMillan

TOKYO, Japan -- Debate over Japan's budget and economic future will likely be pushed back until late September.

"The prime minister is not in a hurry," a Liberal Democratic Party official told reporters.

Japan's parliament typically meets for an extraordinary session in the third quarter. The session will get down to the nitty-gritty of a supplementary budget.

The extraordinary session of parliament will not be convened until late September, the Nihon Keizai Shimbun reported Wednesday.

The economy needs help. Wednesday, the Bank of Japan (BOJ) downgraded its take on it for the third straight month, as business and household spending declines. That came a day after it stepped in to help.

But Koizumi is busy with political issues such as his visit to a World War II shrine, which was prompting violent clashes Wednesday. Many lawmakers are also now leaving for vacation.

Lots to look at

The extra session will also take a look at economic policy, and keep an eye on discussions for the next budget.

Koizumi's cabinet approved his initial plans to scale that back last week. That haggling will continue through its approval in December.

Japan watchers say it is an "open secret" that Japan will get an extra budget in September. Despite an official back-and-forth, the slumping economy needs an extra boost of government spending.

The question is, how much? With Prime Minister Junichiro Koizumi vowing to trim government spending, it may be smaller than normal.

Recession likely to become official

Debate over the extra budget will start a few weeks later than expected, despite Japan's mired economy. Officials want to have time to absorb Japan's next set of gross domestic product figures.

They come out in early September and are expected to be dire. Government ministers have admitted they will mark a second down quarter, meaning Japan will officially enter recession.

Officials also have plenty to puzzle over on the economic front. On Tuesday, the BOJ shocked markets by stepping to the plate to help the world's second-largest economy.

The BOJ, facing heavy political pressure, injected a flood of money into Japan by increasing the current account deposits parked at the BOJ by 1 trillion yen to $49.0 billion (6 trillion yen).

It also pledged to buy more Japanese government bonds (JGBs), upping its order to 600 billion yen per month.

By flooding the market with money, the BOJ hopes banks will get more aggressive with lending as a result.

Revitalizing Japan

But the move has rekindled the argument over how to revitalize Japan. A similar step in March, which moved interest rates virtually to zero, has failed to help.

Government officials welcomed the monetary easing. They had called on the BOJ to do more, in a typical back-and-forth between the independent central bank and the government.

Legislation is in the works that would trim the BOJ's powers after its disastrous move to raise interest rates when the economy was slowing.

Investors initially applauded the steps, with the Nikkei rising almost 4 percent on Tuesday.

But they were having second thoughts Wednesday, with the Nikkei trading down 1.5 percent in morning trade.

Japan is experiencing a strange form of driving, some economists say, with one foot on the accelerator and one on the brake. At the same time it is mulling future budget cuts, it will discuss an extra spending plan.

The BOJ tries to ease the economy, while Koizumi warns restructuring will lead to pain, in the form of unemployment and bankruptcies.

"The pace of economic deterioration continues to be alarming, even before Koizumi-inspired restructuring begins," Richard Jerram, Japan economist for ING Barings, wrote in a report.

"Budgetary processes are pointing to a dangerous degree of fiscal tightening and also opening up divisions within the government."

For the time being, that debate will have to wait.