TOKYO — Japan’s new finance minister, Taro Aso, sought on Thursday to quell concern about the country’s weak finances, saying that the government would not rely solely on debt to fund economic stimulus and would try to limit new debt issuance during the next fiscal year.
The government will compile spending requests for a stimulus package on January 7 and finalize the proposal shortly thereafter as Prime Minister Shinzo Abe tries to speed enactment of his agenda of increased public works spending to lift the economy.
Mr. Abe, sworn in as prime minister on Wednesday, led his Liberal Democratic Party to a landslide election victory this month with pledges to spend more and to get the central bank to purchase more debt, but this has fueled worries that the new government will delay reducing public debt.
“We will curb government bond issuance as much as possible to ensure confidence” in Japanese government bonds, Mr. Aso told reporters on Thursday, referring to the budget for the fiscal year beginning in April. “We need to make public finances sustainable in the medium to long term.”
Japan’s previous government limited new bond issuance each fiscal year to ¥44 trillion, or $514 billion, as a first step to prevent Japan’s debt burden from worsening further.
The new prime minister instructed the Finance Ministry to draft economic stimulus measures without worrying about adhering to this cap, Mr. Aso told reporters in a late-night news conference after the government was installed.
The government has not decided on the size of the stimulus package, but Mr. Abe has repeatedly said he wants “big” spending to help narrow the output gap and ease deflation.
The government could tap reserves and front-load some public works spending in rural areas to limit new debt needed to fund a stimulus package.
It may be necessary to spend around ¥10 trillion, but the government needs to collect spending requests before it can decide, said Kozo Yamamoto, an L.D.P. lawmaker who is working with other politicians to compile the party’s stimulus package.
Mr. Abe’s grand plan to stimulate the economy and end deflation is to combine fiscal spending and monetary easing with steps to encourage private-sector investment.
The government should revise the Bank of Japan Law that guarantees the central bank’s independence, to make it more accountable to the government, said Koichi Hamada, professor emeritus of economics at Yale University and a special economic adviser to Mr. Abe.
The Nikkei 225-stock average hit a 21-month high on Thursday and the yen hit a two-year low on expectations that the L.D.P.’s business-friendly stance and desire to weaken the yen would shake the world’s third-largest economy out of its protracted funk.
“I believe expectations are high. We will work hard so that expectations will not remain just expectations, and that market expectations are realized,” Economics Minister Akira Amari told reporters Thursday.
Japan’s public debt burden, more than twice the size of its $5 trillion economy, piled up during the Liberal Democratic Party’s more than half a century of almost unbroken rule in Japan.
Now that the L.D.P. is back in power after three years in opposition, investors are looking for signs of how far the party will increase spending.
Japan’s economy is in a mild recession because of a big slump in exports but is likely to escape next year, economists say.
Crafting bills for fiscal spending to ensure economic recovery is likely to take priority over revising the law to limit the Bank of Japan’s independence, but other political parties are also interested in changing the central bank’s mandate.
A small party called Your Party submitted a bill on Thursday to make the Bank of Japan responsible for achieving stable employment and allow it to buy foreign debt, which could draw more attention in the regular session of Parliament next year.
Article source: http://www.nytimes.com/2012/12/28/business/global/japan-will-limit-debt-financing-new-minister-asserts.html?partner=rss&emc=rss
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