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Prime Minister Taro Aso's government signaled it is diverging from Japan's eight-year austerity policy. The government will compile the budget for the year to begin April 1 based on the stance that it will 'take decisive steps in a quick, flexible manner' if needed for the country's faltering economy. It suggested that more spending is in the cards if Japan falls even deeper into a recession. The guidelines pledged new employment measures. More spending would require more issuance of government debt as well, which would threaten the country's poor fiscal health.
Increased spending could have more serious implications for Japan. The nation's public debt stands at 170% of gross domestic product -- the highest ratio among industrialized nations. The government will keep the budget ceiling set in July, and also need to respond flexibly to prevent the economy from suffering a free fall.
