Koizumi hints at breaking 30 million yen bond-cap pledge

Prime Minister Junichiro Koizumi hinted Friday that he may renege on his promise to limit government bond issuance to 30 trillion yen for fiscal 2002, signaling a possible shift in his economic policy.

“We must watch the situation of tax revenues,” Koizumi told reporters at his official residence, responding to a question about the possibility of cracking the 30 trillion yen bond issue ceiling.

The bond issuance cap is one of the key elements of Koizumi’s structural reform policy, intended to wean Japan from its addiction to deficit spending in a vain attempt to send ripples through its stagnant economy.

The limit has already been reached under the initial budget for fiscal 2002, meaning any further spending from government coffers will inevitably exceed the bond issuance cap.

“It’s still too early” to make a decision on the matter as tax revenues estimates for an entire fiscal term usually crystallize toward the year’s end, Koizumi said. But a significant decrease in fiscal 2002 tax revenues is anticipated, reflecting Japan’s lifeless economy.

Some economic think tanks predict decreases of between 2 trillion yen and 3 trillion yen from year-before figures.

Koizumi’s remarks come amid calls for the government to compile an extra budget for the current fiscal year to create a safety net for the growing ranks of unemployed.

The number of bankruptcies and unemployed workers are likely to grow in line with the government’s moves to revitalize the nation’s banking sector by accelerating the disposal of banks’ nonperforming loans.

According to the Yomiuri Shimbun, the Finance Ministry has accepted the necessity of scrapping the 30 trillion yen framework.

Finance Minister Masajuro Shiokawa has indicated an openness toward reviewing the bond issuance cap.

“We must first consider effective measures to revitalize the economy and a fiscal scale to realize such measures,” he said. “The issue of 30 trillion yen should be discussed after that.”

Chikage Ogi, minister of land, infrastructure and transport, also said she would support moves to do away with the bond issuance cap.

“The economy is a living thing,” she said. “We should not lose our stance to cope with it at any time.”

Shiokawa also called on the Bank of Japan to step up to the plate.

“I hope the Bank of Japan will actively engage in easing its monetary policy,” he said. “I hope the bank will raise the current 15 trillion yen in balance (at the credit account).”

The BOJ keeps funds of up to 15 trillion yen in its credit account that can flow into private businesses through private-sector banks.

Shiokawa said he wants this amount to be increased monthly, sending a clear signal to the public that the BOJ is working to ease its monetary policy.