By Kaori Kaneko and Izumi Nakagawa

TOKYO (Reuters) – Japan may need to consider compiling another extra budget to help its economy if the current reserve fund is not enough to respond to the coronavirus pandemic, a senior ruling party lawmaker said on Friday.

Hakubun Shimomura, the policy research council chief for the Liberal Democratic Party (LDP), said the reserve would likely be enough to cover support for the economy in 2020. A third extra budget could come as early as next year if reserve funds become insufficient.

“If 10 trillion yen of budget reserve is not enough, the government may need to compile a third extra budget,” Shimomura said in an interview with Reuters.

Japan’s economy suffered its biggest slump on record in the second quarter due to impact of the coronavirus. To soften the blow, the government has delivered two stimulus packages this year totalling 234 trillion yen ($2.21 trillion), or about 40% of Japan’s gross domestic product.

The government is tapping a pool of funds, set aside under the packages, to meet the cost of battling the pandemic. But some lawmakers are calling for another spending package as the economic pain persists.

Shimomura said that the party was not discussing a possibility of cutting the sales tax, which the government raised to 10% last October from 8%.

Nor had the party discussed whether the BOJ should cut its already negative interest rates further, Shimomura said, but he believed the party’s research commission on the finance and banking systems would discuss the issue.

The Bank of Japan has ramped up stimulus twice so far this year and created a lending facility to channel funds via banks to cash-strapped smaller firms.

Shimomura dismissed speculation that Prime Minister Yoshihide Suga would call a snap election to secure his own mandate from the electorate, after LDP lawmakers chose him to replace Shinzo Abe, who quit as prime minister last month due to ill health.

“I think it is not a situation where parliament should be dissolved now,” he said, adding that Suga needed to focus on steps to contain the spread of coronavirus help revive the economy.

An interim report compiled by a group of the LDP lawmakers in September said that Japan needs to boost its economic information gathering capability, strengthen information and telecommunication infrastructure and to examine related laws needed for introducing digital currency.

The party aims to map out a proposal to the government by the end of this year.

“We plan to compile a proposal or a request to the government, or work with the government regarding law revisions as needed,” he said.

The BOJ said on Friday it would begin experimenting next year on how to operate its own digital currency, joining efforts by other central banks to catch up to rapid private-sector innovation.

(Reporting by Kaori Kaneko and Izumi Nakagawa; Editing by Ana Nicolaci da Costa & Simon Cameron-Moore)

Copyright 2020 Thomson Reuters.

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