The Nikkei’s Giddiness May Be Overblown as Time Constraints and Recession Looms

“Prime Minister Yoshihiko Noda’s decision to call an election in December may inhibit the government’s ability to stimulate an economy that’s sliding toward its third recession in four years.

Compiling an extra budget soon will be “difficult” as lawmakers cannot debate spending with the Diet dissolved, Economy Minister Seiji Maehara said this week. Stimulus using reserve funds won’t be enough to support the economy, he said inTokyo today. Drafting of next fiscal year’s main budget may be delayed, Finance Minister Koriki Jojima said this week.

Constraints on government action add extra pressure for loosening by the Bank of Japan (8301) to spur growth, counter deflation and weaken the yen. Opposition leader Shinzo Abe’s call yesterday for unlimited easing had a bigger effect on the currency than the central bank’s most recent easing on Oct. 30, sending the yen to a six-month low against the dollar.

“There’s a risk that the recession which should be for two quarters could last for three or even four,” said Junichi Makino, chief economist in Tokyo at SMBC Nikko Securities Inc., a unit ofJapan’s second-largest bank by market value, citing the risk of budget delays.

Noda will dissolve the lower house of parliament today after the upper house passed a bill to issue bonds to finance spending for the rest of this fiscal year, following a months- long impasse that left the government weeks away from running out of money. The election will be held on Dec. 16.”

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