Japan unveils record budget to boost economy

Japan unveiled on Friday a record trillion-dollar budget for next year despite growing worries about its debt mountain, seeking to revive an economy hit by its worst downturn in decades.

The move came as a batch of data added to worries that Japan's economic recovery is running out of steam, with the jobless rate rising and deflation continuing to hobble the world's number two economy.

Prime Minister Yukio Hatoyama's three-month-old government approved an unprecedented budget worth 92.3 trillion yen (1.0 trillion dollars) for the next financial year starting in April.

It predicted that Asia's biggest economy would grow 1.4 percent next year, marking the first expansion in three years, as it claws back from the worst downturn in decades.
"I will do my best to avoid a double-dip recession," Hatoyama told a news conference.
Hatoyama, who marked his first 100 days in office this week, has moved to slash what his party deems to be wasteful public spending and redirect money to struggling households.
His budget plan will pile further pressure on Japan's ailing public finances. The government will issue new bonds worth a record 44.3 trillion yen to cover the spending plans.
The Organisation for Economic Cooperation and Development has warned that Japan's public debt is set to soar to more than 200 percent of gross domestic product by 2011.
"Rising debt is worrisome for Japan," said Okasan Securities equity strategist Hirokazu Fujiki.
"With the new government, only the allocation of resources has changed and that hasn't prevented debt from rising further."
Japan's economy grew in April-June for the first time in five quarters on rebounding exports and government stimulus measures, but stubborn deflation and a weak job market are seen as a threat to the recovery.
The unemployment rate climbed to 5.2 percent in November from 5.1 percent in October, worsening for the first time in four months, the government said.
Core consumer prices fell 1.7 percent in November from a year earlier, the ninth straight month of drops, fanning worries that deflation could jeopardise a fragile recovery from the worst recession in decades.
Last week Japan's central bank said it was a "critical challenge" for Asia's biggest economy to overcome deflation, which hurts companies and encourages consumers to put off purchases.
The economy is still gradually recovering but increasingly appears to be heading for a lull, said Hiroshi Watanabe, an economist at the Daiwa Institute of Research.
"Unemployment has improved rapidly for the past three months (to October) as it emerges from the worst period, but it is likely to stay slightly above five percent in the coming months," he said.
The jobless rate was a record 5.7 percent in July.
Kyohei Morita, chief Japan economist at Barclays Capital, said the jobless rate could rise into the upper five percent range in the April-June quarter next year with retail and other sectors reducing job offers.
Deflation may ease due to an economic expansion and a planned tobacco tax hike, but inflation will not return any time soon, he added.
"It will be at least three years until we see price rises. Japan's economic recovery is not strong enough to break out of deflation," he said.
Japan was stuck in a deflationary spiral for years after its economic bubble burst in the early 1990s, hitting corporate earnings and prompting consumers to put off purchases in the hope of getting a lower price.