In a very radical move, the Japanese government approved the suspension of 5 trillion yen ($63.4 billion) in spending. The move comes in light of the political bickering as cash-starved agencies were depending on this shot-in-the arm to survive the tepid global economic scenario.
The suspension simply means that the spending has been postponed and the tax grants for municipalities and aid for universities will be looked into after three months. The funds are currently more required for fulfilling essential public service provision. An long drawn political battle on this issue has blocked the passage of a bond-issuance bill needed to finance two-fifths of the central government’s Y90.334 trillion budget for this fiscal year ending in March. This move also marks Japan’s first post war suspension of budgeted spending.
Finance Minister Jun Azumi highlights that if the situation continues to tumble on months after months, the impact on the Japanese economy will not be very good. According to him the government could almost run out of money by the end of November. Europe’s debt crisis has impacted Japanese exports, leaving the economy highly reliant on government spending. The Bank of Japan as a precautionary measure injected around 2 trillion yen into the market to offset a likely increase in cash demand due to the delayed tax-grant payments for municipalities.[Via Nikkei]