Japan’s ministries wield spending axe

Japanese ministries have offered more than Y2,500bn ($27bn, €19bn, £17.5bn) in cuts to the huge stimulus package being implemented in the world's second-largest economy, but Yukio Hatoyama, prime minister, has called for even tougher trimming.

The call for further review of the nearly Y15,000bn supplementary budget reflects the determination of the new ruling Democratic party to find funds for its policy priorities, although where savings will be spent is still under debate amid widespread worries about the strength of Japan's economic recovery.

Such concerns were underscored on Tuesday by the latest in a string of disappointing results by retailers, with Aeon, a leading operator of supermarkets and convenience stores, unveiling a nearly Y15bn net half-year loss.

NHK, the state broadcaster, said the proposed cuts to the stimulus budget included Y888bn in savings offered by the transport and infrastructure ministry and Y476bn offered by the health and welfare ministry.

However, some government officials have unofficially targeted Y3,000bn in savings. Mr Hatoyama told journalists he wanted the ministries to try “even harder” to identify further cuts.

Before last month’s historic transfer of power to the DPJ, Hirohisa Fujii, now finance minister, told the Financial Times he favoured using savings from the package to fund manifesto pledges in the year from April. However, the government is likely to come under pressure to spend the money more quickly in order to support a recovery that some economists fear could stall this year.

Unemployment fell last month but remains near a record high and Naoto Kan, the deputy prime minister, said on Tuesday that the government might introduce emergency measures to create jobs toward the end of this year and in early 2010.

Job insecurity has weakened consumer sentiment, hurting some of Japan's biggest retailers since the economy plunged into its harshest post-war recession last year.

The Y14.6bn net loss suffered by Aeon in the six months to the end of August reflected slower sales and fierce price wars and followed an equally sobering performance at Ito Yokado, Japan’s largest supermarket operator.

Ito Yokado said last week it was considering closing 30 loss-making stores by the end of fiscal 2013, after suffering an operating loss for the first time.

“All the major store groups will fall into the red this first half,” because of price competition and the slump in consumption, said Masafumi Shoda, analyst at Nomura.

Daiei, once Japan’s largest supermarket group, warned last month its net loss for the year to February would be about Y5.5bn, larger than forecast.

As consumers have tightened their purse strings, operators of supermarkets and general stores have relied on aggressive price cuts to encourage customers to spend and clear mounting inventories – a strategy that is helping fuel deflation.

But retailers’ woes also stem from their failure to adjust their business models quickly enough to cope with the changed environment, Mr Shoda said, citing a failure to address oversupply of stores created by a decade-long building spree.

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