(FT) -- Japan's ruling Democratic party plans to introduce a supplementary budget of up to $55bn to pay for further stimulus measures aimed at combating the impact of the strong yen and kick-starting the flagging economy.
The move highlights growing concerns that the Japanese economy is stagnating in the face of weakness in export markets and a strong yen and that more needs to be done in spite of the government's September 15 currency market intervention.
Naoto Kan, the prime minister and a fiscal hawk who has warned that Japan could become the next Greece, has been hesitant to adopt bold stimulus measures for fear of pushing the nation further into debt.
As a result, the government might now be seen as bowing to pressure from the opposition Liberal Democratic party and the New Komeito party, which have been leading the call for new emergency funds in the range of Y4,000bn-Y5,000bn ($47bn-$59bn) to stimulate the economy.
Ichiro Ozawa, Mr Kan's rival in the recent party leadership challenge, has also been supportive of more government spending.
The government agreed last week to an emergency Y918bn economic stimulus plan, aimed at creating 200,000 jobs and boosting real gross domestic product by 0.3 per cent. However, that plan has been widely criticised as inadequate.
DPJ officials said at the weekend that it would be possible to fund a supplementary budget of up to Y4,600bn without selling new debt, because of higher than expected tax revenues, unused funds from the 2009 budget and funds available due to lower than expected interest payments on government bonds.
Mr Kan is due on Monday to ask DPJ officials to draw up a supplementary budget proposal to be submitted to an emergency Diet session starting on Friday.
The prime minister has repeatedly said the government is prepared for more currency intervention if necessary to stem the yen's appreciation.
Masaaki Shirakawa, Bank of Japan governor, told an audience in Kobe on Sunday that the central bank was closely watching the yen's effect on the economy and was prepared to take "appropriate action" if necessary.
However, the impact of Japan's unilateral intervention is widely expected to be limited and the government has come under growing pressure to come up with other measures to stimulate the economy.
"Obviously, the economy does need some support," said Robert Feldman, managing director of Morgan Stanley in Tokyo. He said the government had to implement long-term structural reforms in areas ranging from agriculture to healthcare in order to encourage more competition and economy of scale.
