Mr Hiroshi Yoshikawa Tokyo University professor and head of the Japanese government business cycle measurement committee said that that Japan"s present recession may become the longest in the postwar era. He added that "We had better get ready for a 3 year recession. The decline will be very severe, not only in terms of duration but also depth."
Even with spending staying flat on the rather dubious assumption of no further packages, the Japanese government will still need to sell 33.3 trillion yen of new debt, the most in 4 years, since the economic contraction means there will be a revenue shortfall. The so called primary budget deficit, the excess of spending over revenue excluding bond sales and interest payments, will balloon to JPY 13.1 trillion from this year"s JPY 5.2 trillion.
He said that "The most obvious problem is that increasing spending at a time when tax revenue is falling threatens the government’s goal of balancing the budget by 2011. But Aso has already indicated that the government should not prioritize fiscal discipline when the economy is ailing, and so far as it goes the argument is reasonable. This is a once in a lifetime crisis and so once in a lifetime measures are in order. It"s just that Japan has now been busily taking once in a lifetime measures for over a decade, and we still don"t seem to be getting anywhere. But we are ballooning government debt."
Mr Yoshikawa further added that this is the real core of the problem that Japan faces in 2009, that previous fiscal policy did not attack the growing fiscal deficit in the good times, so there is little room to maneuver in the bad ones. This is why Japan"s economic outlook in 2009 is grim, grim and nothing but grim.