Japan needs fiscal targets but wary
Japan needs to set numerical targets to rein in its huge public debt or face fiscal ruin, but ruling party leaders are wary of taking the political risk, a member of a government panel now discussing the topic has announced08/02/2010
Bond investors are worried about Japan's bulging debt, already nearing 200 percent of GDP, and fear the Democratic Party-led government may boost spending more to keep a fragile recovery on track ahead of an upper house poll expected in July.
"There is political risk in setting goals ... If it goes well, they win political points but if they don't hit the interim goal, they will be criticised," said Yoshihiro Katayama, a former reformist governor and now a professor at Keio University.
"They (politicians) tend not to notice until the market finally says 'No'. So they focus on the risk in front of their eyes," he added.
Japan's five-month old government is trapped between the need to deal with the mounting public debt and a desire to keep the economy from slipping back into recession.
That policy bind prompted Standard & Poor's last month to cut the outlook on Japan's AA debt rating to negative.
National Strategy Minister Yoshito Sengoku, in charge of crafting a medium-term fiscal reform strategy by June, told reporters recently that he was not sure if the government would come up with numerical targets "because we need to monitor the economic situation a little longer."
Election first and foremost
Katayama, however, said targets should be set as soon as possible given the disastrous state of Japan's finances.
"In terms of numbers, the situation is close to being irreparable," he said.
He added, however, that the risk of default was lessened by the fact domestic investors hold the bulk of Japanese government bonds.
But with an upper house election expected in July, cabinet ministers and ruling party lawmakers are thinking almost exclusively about the looming poll, Katayama said.
"Their big goal is to win in the upper house election, and what they do after they win is secondary," he said.
Prime Minister Yukio Hatoyama's Democrats swept to power in an election last year, ending more than half a century of rule by the conservative Liberal Democratic Party (LDP) and promising to give consumers more cash to boost the economy.
But voter concerns about Hatoyama's leadership and a funding scandal embroiling party kingpin Ichiro Ozawa have eroded support for the government to below 50 percent. Some surveys show more voters are unhappy with the administration than back it.
Katayama said as long as Ozawa, who honed his electioneering skills in his years as an LDP heavyweight before bolting the party in 1993, was the real power in the Democratic Party, little would change.
"The question is whether they can bid farewell to Ozawa's clout," Katayama said.
Ozawa repeated that he would stay on as Democratic Party secretary-general, but many analysts think he will have to step down eventually to save the party's chances at the polls.
