Suggestions by some U.S. officials that Japan should slacken the pace at which it implements budget austerity are understandable but go against the nation’s interests, Finance Minister Hiroshi Mitsuzuka said.
Mitsuzuka, who began his second term as finance chief after the Cabinet reshuffle, said in an interview with The Japan Times that while Tokyo’s efforts to get its fiscal house in order might be painful, they will support economic growth in the medium term.
He added that this is a point on which he will seek the understanding of the other members of the Group of Seven when finance ministers and central bankers gather in Hong Kong Sept. 20. “It is not that I do not understand (the U.S.) thinking, but such ideas would trigger a complex debate over whether it means we should slow down, abandon or freeze our plans to implement the pivotal reform of fiscal reconsolidation, and that would not be in our national interest,” he said.
The United States has recently begun to voice its concern over the sluggishness of the economy and question the validity of Japan’s repeated commitment not to let its external surpluses rise significantly. Economic indexes show that the 2 percentage point rise in the consumption tax from April had a highly detrimental effect on personal spending, and the current account surplus has continued to log year-on-year rises for four straight months.
Treasury Secretary Robert Rubin and other officials have implied that plans to reduce the nation’s fiscal deficit should be decelerated to place greater focus on stimulating domestic demand.
Tokyo intends to reduce its fiscal deficit to no more than 3 percent of gross domestic product and stop issuing deficit-covering bonds by fiscal 2003. As a start, austere budget caps for fiscal 1998 such as a 7 percent cut in public works spending to give momentum to the reconsolidation effort have been set.
The topic of Japan’s rising surplus and weak domestic demand is sure to be one of the main issues in Hong Kong. But officials say they will maintain their explanation that past changes in the nation’s economic structure will no longer make it possible for the surplus to balloon to substantial levels.
At the same time Mitsuzuka indicated that Tokyo is not trying to buoy its economy through exports, reiterating the ministry’s position that Japan does not use foreign exchange policy to prop up the economy. “Everything is left up to the markets, and we will continue to carefully monitor (foreign exchange) movements,” he added.