Bloomberg News

Japan Currency Chief Warns Against Delay Over Finances

April 10, 2012

Japanese Prime Minister Yoshihiko Noda. Photographer: Kiyoshi Ota/Bloomberg

Japanese Prime Minister Yoshihiko Noda. Photographer: Kiyoshi Ota/Bloomberg

Japan’s top currency official warned against delays in efforts to improve the nation’s finances as Prime Minister Yoshihiko Noda grapples with the world’s biggest public debt burden.

Advanced economies such as Japan “cannot postpone fiscal consolidation efforts forever,” Takehiko Nakao, 56, vice finance minister for international affairs, said in an interview in his office in Tokyo yesterday.

Noda faces opposition in parliament and within the ruling Democratic Party of Japan as he seeks to double the nation’s sales tax by 2015 to boost revenue, highlighting the risk that policy initiatives will stall. Japan must quickly overhaul the tax and social security systems to prevent government borrowing costs from spiraling in the next decade, Yasuhiro Sato, chairman of the Japanese Bankers Association, said last month.

Nakao took the role made famous by Eisuke Sakakibara, the official who became known as Mr. Yen, in August last year. He declined to comment yesterday on the yen’s level or the currency’s rebound since mid-March against the dollar.

Last year, he oversaw interventions that helped to pull the yen back from a post-World War II high of 75.35 against the dollar that was cutting sales and profits for exporters. Easing by the Bank of Japan has also helped to curb gains, with the yen at 80.68 as of 9:59 a.m. in Tokyo today.

Nakao saw signs of strength in the U.S. economy and said that China has scope for fiscal and monetary expansion if needed, with Premier Wen Jiabao’s government aided by “very large” increases in tax revenue. A Chinese trade report yesterday showing weaker-than-forecast imports fueled concern that a slowdown in Asia’s biggest economy may deepen.

Japan’s Recovery

In Japan, government spending on earthquake reconstruction, the fading of disruptions to supply chains from flooding in Thailand and the yen weakening a “little bit” have aided a recovery from the disaster in March last year, Nakao said. Last year’s “very speedy appreciation” of the currency was “not very helpful,” he said, adding that it was difficult to conclude that the gains had reflected economic fundamentals.

The upper house of the Diet last week rejected the government’s candidate for a vacancy on the Bank of Japan (8301)’s policy board, underscoring the risk that political gridlock limits policy changes. The Cabinet needed to draft the first stopgap funding bill in 14 years to keep the government running after parliament failed to adopt Noda’s 2012 budget.

The nation’s borrowings will exceed 1,000 trillion yen ($12.4 trillion) for the first time in this fiscal year, the Finance Ministry projects. The Organization for Economic Cooperation and Development predicts Japan’s public debt will reach 219 percent of gross domestic product.

Currency Reserves

Separately, Nakao indicated limits on how the nation’s $1.2 trillion of currency reserves will be used after portions went into supporting rescue efforts for Europe and the so-called Chiang Mai Initiative, a pool of funds used to shield Asian economies from shocks.

“We are not thinking of using our reserves like a sovereign wealth fund,” he said, adding that the public and parliament would need to reach a consensus on setting up any such operation.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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