By Tetsushi Kajimoto and Leika Kihara
TOKYO (Reuters) -Japan's government is expected to compile an extra budget in October or November, senior ruling party lawmaker Kozo Yamamoto said on Wednesday, calling for spending of around $239 billion to cushion the economic blow from the COVID-19 pandemic.
Yamamoto, a political heavyweight close to former Prime Minister Shinzo Abe, also urged the Bank of Japan to ramp up asset buying to weaken the yen further and help the export-reliant economy.
"The BOJ must do more because Japan appears to be sliding back to deflation. Instead, the BOJ is stealth tapering asset purchases," Yamamoto told Reuters in an interview.
"The BOJ should seek to weaken the yen more" by boosting government bond purchases and looking for new assets to buy such as municipal and foreign bonds, he said.
Yamamoto called on the government to compile a 26-trillion-yen ($239 billion) extra budget as soon as possible to pull the pandemic-hit economy out of the doldrums, a proposal he made at a party panel headed by Abe.
That would come on top of a record budget worth almost $1 trillion yen for the current fiscal year, adding strains to Japan's already tattered finances.
Yamamoto said he submitted the proposal to Prime Minister Yoshihide Suga, but added that parliament deliberations over an extra budget will likely have to wait until an expected lower house election in autumn.
Commenting on the Olympic Games, Yamamoto said he expects Tokyo to proceed as scheduled in July even if that meant no spectators.
A former finance ministry bureaucrat, Yamamoto was considered a key architect of the former premier's "Abenomics" reflationary policy comprised of bold monetary policy, flexible fiscal spending and reform.
Yamamoto said many successes of Abenomics were being rolled back, with Suga's administration wary of big spending and the BOJ quietly slowing the pace of money printing.
Suga on Tuesday unveiled a plan for targeted government spending as the government kicked off debate on this year's fiscal blueprint.
Markets are focusing on whether Japan will maintain a pledge to achieve a primary budget surplus in fiscal 2025, a goal seen as impossible to meet after huge pandemic-relief spending.
"There's no need at all to stick to the primary balance target," Yamamoto said. "Just having the target would hurt the economy by giving markets the impression Japan is on course for fiscal austerity."
($1 = 108.8000 yen)
(Reporting by Tetsushi Kajimoto, Leika Kihara and Takaya YamaguchiEditing by Shri Navaratnam and Ana Nicolaci da Costa)