Reuters/Tokyo
Japan’s new finance minister yesterday sought to quell concern about the country’s weak finances, saying the government will not rely solely on debt to fund economic stimulus and will try to limit new debt issuance next fiscal year.
The government will compile spending requests for a stimulus package on January 7 and finalise the proposal shortly thereafter as Prime Minister Shinzo Abe tries to quickly enact his agenda of increased public works spending to boost the economy.
The Bank of Japan’s independence should be limited to ensure it buys enough government debt to spur inflation, an adviser to Abe told Reuters in an interview, echoing Abe’s repeated calls for “unlimited” monetary easing to end almost 15 years of deflation.
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 fuelled worries the new government will delay reducing public debt.
“We will curb government bond issuance as much as possible to ensure confidence in JGBs,” Finance Minister Taro Aso told reporters, referring to the budget for the next fiscal year beginning in April.
Japan’s previous government limited new bond issuance each fiscal year to ¥44tn ($514bn) as a first step to prevent Japan’s debt burden, the worst among major economies, from worsening further.
The new premier instructed the finance ministry to draft economic stimulus measures without worrying about adhering to this cap, Aso told reporters in a post-midnight news conference after the government was installed.
The government has not decided the size of the stimulus package, but Abe has repeatedly said he wants “big” spending to help narrow the output gap and ease deflation.
The government could tap reserves and frontload some public works spending in rural areas to limit new debt needed to fund a stimulus package.
It may be necessary to spend around ¥10tn, but the government needs to collect spending requests before it can decide, said Kozo Yamamoto, an LDP lawmaker who is working with other politicians to compile the party’s stimulus package.
Abe’s grand plan to boost the economy and end deflation is to combine fiscal spending and monetary easing with steps to encourage private-sector investment.
