Japan Opposition Details Steps to Revive Economy

By TAKASHI NAKAMICHI

TOKYO -- The opposition Democratic Party of Japan, which is favored to win general elections next month and form a government, unveiled Monday a manifesto promising to stimulate consumer spending and shift policy-making power to lawmakers from bureaucrats.

The DPJ's release of its campaign pledges comes as analysts watch to see how the party may govern if it wins key lower-house polls planned for Aug. 30.

Based on the party's campaign pledges, the economic measures would cost 7.1 trillion yen, or roughly $75 billion, in the fiscal year starting in April. The amount would expand in subsequent years to 16.8 trillion yen in the fiscal year beginning in April 2013. The DPJ says it would secure the funds mainly by eliminating wasteful public spending and using government reserves rather than by increasing taxes.

While many of the promises -- such as cash aid for families with children, free public high-school education and the abolishment of highway tolls -- may be popular with voters, their potential to heal the recession-stricken economy is uncertain.

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Yukio Hatoyama, president of the Democratic Party of Japan, shows a copy of his party's manifest during a news conference in Tokyo Monday.

If the DPJ follows through with its pledges, inflation-adjusted growth in the current fiscal year could fall by 0.2 percentage point to about minus 3%, said Toshihiro Nagahama, senior economist at Dai-Ichi Life Research Institute. That is because "the party seems to be planning to freeze part of the public works projects under way" to save money.

Still, in the next fiscal year, the DPJ measures could boost growth by 0.3 percentage point to around 1.5% by lifting consumption, he said.

Seiji Adachi, senior currency analyst at Deutsche Securities, said if the DPJ reduces existing tax exemptions to enable more public spending, then middle-age or older people may see declines in household income, while lower-income families benefit from income redistribution.

The DPJ's flagship proposal is a monthly allowance to be paid per child until he or she graduates from middle school, or the ninth grade. The allowance would start at 13,000 yen in the fiscal year beginning April 2010 and rise to 26,000 yen the following year.

Other consumer-friendly steps include scrapping highway tolls, waiving tuition for public high schools from next fiscal year, abolishing temporary surcharges on gasoline and other road-related taxes, and reinforcing the unemployment safety net.

Measures to boost the strained social security system include plans to increase the number of doctors and build a tax-funded pension system offering a minimum of 70,000 yen every month per person.

In the fiscal year, starting in April 2013, when all of the DPJ's envisioned measures would be fully in effect, the total policy costs would reach 16.8 trillion yen, around 3.4% of last year's inflation-adjusted gross domestic product.

DPJ steps that could potentially weigh on the corporate bottom line include a 25% cut in greenhouse-gas emissions by 2020 from 1990 levels -- more ambitious than the current government's 8% reduction target. The DPJ also wants to strengthen protection of part-time workers, while raising the average minimum hourly pay to 1,000 yen -- steps that could backfire if they discourage hiring of temporary employees, analysts say. The party also proposes to lower the tax rate for small companies to 11% from the current 18%.

Economists say they worry that if the DPJ's revenue plan fails, the economy could suffer should the government sell more bonds to raise money, causing long-term interest rates to climb.

Masayuki Naoshima, head of the DPJ's research committee, said at a news conference Monday that a DPJ government might sell deficit-financing securities to pay for stimulus measures if the economy deteriorates more.

Nor can the prospect of tax increases be entirely ruled out, DPJ Chief Yukio Hatoyama said at the news conference. He said the debate could be opened on whether to raise the 5% consumption tax for the coming four years, changing his previous stance that there would be no debate.

Write to Takashi Nakamichi at takashi.nakamichi@dowjones.com