Japan is expected to see another stimulus package introduced under a new prime minister, as several candidates in the ruling party's leadership race have promised new spending measures to spur growth and help households cope with rising inflation.
In announcing his intention to run in the race to replace incumbent Prime Minister Fumio Kishida, Chief Cabinet Secretary Yoshimasa Hayashi said Monday he would prefer boosting spending, rather than cutting taxes if the economy requires another stimulus package.
Another candidate and minister in charge of economic security, Sanae Takaichi, also called for more fiscal spending to strengthen the economy.
"Strategic deployment of fiscal spending will increase jobs, household income, and improve consumer sentiment. It will also increase tax revenues without raising the tax rate and help build a strong economy," Takaichi told a press conference on Monday to announce her intention to run in the leadership election.
The remarks came as revised government data showed on Monday that Japan's economy grew at an annual rate of 2.9%, slower than the earlier report for 3.1% expansion, in the April-June period, boosted by better wages and spending.
That shows clear risks remain, including U.S. economic growth, which greatly affects export-reliant Japan. Political uncertainty is another risk as the ruling party picks a new leader.
On Friday, leading candidate Shinjiro Koizumi said he would "immediately" work on a new economic package to aid small firms and low-income households hit by rising living costs.
"I'll aim to beef up the underlying strength of the Japanese economy so that growth can be attained even in an era where inflation and higher interest rates co-exist," Koizumi said.
The winner of the Liberal Democratic Party's (LDP) leadership race, scheduled on Sept. 27, will become the next prime minister due to the party's control of parliament.
Kishida announced last month that he would step down as LDP chief in September, effectively ending a three-year term as leader of the world's fourth-largest economy.
Kishida's successor is likely to dissolve parliament next month after being chosen as prime minister in an extraordinary parliament session and call a snap election, analysts say.
Ruling party lawmakers traditionally make pledges of big spending packages to lure voters when elections near, a trend that led to a ballooning public debt which, at twice the size of Japan's economy, is the biggest among advanced nations.
The economy grew 0.7% in the fiscal first quarter, according to the Cabinet Office on Monday, rebounding from the contraction in the previous quarter.
Seasonally adjusted real gross domestic product, or GDP, measures the value of a nation's products and services. The annual rate shows how much the economy would have grown or contracted if the quarterly rate continued for a year.
Monday's GDP data showed domestic demand grew a robust 3.0% from the previous quarter on the back of healthy household consumption and private sector investments, as well as government investments. Exports grew a booming 6.1%, even better than the earlier reading for 5.9% growth.
Japan's GDP shrank 0.6% in January-March on quarter, after eking out 0.1% growth in October through December last year.
The weakening of Japan's economic clout is a pressing concern for a nation that the IMF projects will slide into fifth place, after the U.S., China, Germany and India in coming years at the current rate.
The candidates have offered a few clues about their views on monetary policy. Hayashi declined to comment when asked about market expectations that the Bank of Japan (BOJ) is likely to raise interest rates further.
Koizumi did not directly comment on monetary policy but said he would "basically carry over" the economic policies of Kishida's administration.
An outlier was Takaichi, who said inflation was still too weak when stripping away the effect of one-off factors like fuel and raw material, in a sign of her preference for the BOJ to maintain ultra-loose monetary policy.
"Some people say inflation has already hit the BOJ's 2% inflation target," said Takaichi, seen as a fan of deceased former Prime Minister Shinzo Abe's "Abenomics" stimulus policies. "But inflation is propped up by external factors. We can't say Japan has stably achieved the BOJ's price target."
The BOJ ended negative interest rates in March and raised borrowing costs to 0.25% in July. Governor Kazuo Ueda has signaled the bank's intention to hike rates further if inflation remains on track to stably hit 2%, as its board now projects.
