Facing a ballooning government debt and a still-fragile economy, newly appointed Finance Minister Sadakazu Tanigaki hopes to pursue a tight fiscal policy and allocate the budget effectively.

Speaking with journalists, Tanigaki also issued a warning over the yen’s recent surge against the dollar, saying his ministry is ready to intervene to counter speculative currency-trade maneuvers.

A stronger yen could hurt the country’s nascent economic recovery by cutting the value of exporters’ dollar receipts when converted into yen.

The 58-year-old lawmaker and former minister in charge of industrial revitalization acknowledged that walking the fiscal tightrope will be hard.

“There is no clever scheme to overcome the high hurdle, ” he said when asked how to eke out a primary budget surplus in the early 2010s.

A primary budget surplus is a scenario in which expenditures, excluding debt-servicing costs, are fully covered by tax revenues. A continued surplus can help keep the government debt from growing.

“For one thing, the country needs fiscal discipline, and general outlays for the next fiscal year will be limited,” he said.

On the other hand, the government should spend on initiatives that seem to be effective and promising, he said.

He did not elaborate on which sectors he is considering.

Achieving a primary budget surplus has been one of Prime Minister Junichiro Koizumi’s pledges since he took office in April 2001. It is also one of three tasks Koizumi gave Tanigaki on his appointment.

The government has funded a considerable portion of its annual budgets through borrowing. It is expected to post a primary budget deficit of 19.6 trillion yen in fiscal 2003, up from the previous year’s deficit of 18.9 trillion yen.

Regarding the yen’s recent surge against the dollar, Tanigaki said, “We need to be extremely cautious about currency trade after the G7 (meeting).” He was referring to weekend calls by finance chiefs of the Group of Seven major economies for more flexible exchange rates for major countries or economic areas.

The dollar tumbled below 111 yen earlier this week, having previously hovered around 115 yen.

“When the exchange rates become volatile and do not reflect economic fundamentals, taking steps at the right time has always been accepted globally, and that understanding remains intact,” he said. For Japan, “taking steps” means selling yen for dollars in order to drive down the yen.

Analysts say the yen’s sharp rise arose from speculation that the G7 communique had checked heavy yen-selling intervention by Japan.

Tanigaki added that he is prepared to tackle the issue of reforming central government tax grants awarded to localities.

“We cannot avoid the reform of tax grants. They have played a big role, but they have also helped promote local governments’ fiscal looseness,” he said.

Tanigaki said he would adhere to Koizumi’s policy of not raising the consumption tax, which stands at 5 percent, during his tenure.

He added, however, that the country must discuss the pros and cons of a tax hike, which he suggested would be unavoidable in the future.

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