Ex-Economy Minister Hayashi Says DPJ Lacks Plan to Rein in Debt
Former Japanese Economy Minister Yoshimasa Hayashi slammed the government’s fiscal policy, saying it’s not doing enough to contain the world’s largest public debt.
“It’s common sense” to set a fiscal target, Hayashi, 49, a lawmaker at the Liberal Democratic Party which was in power for almost all the period that the nation’s debt rose, said in an interview in Tokyo on Jan. 29. “It’s like smoking while driving a gasoline truck, so it’s a bit scary.”
The national debt is approaching 200 percent of gross domestic product as spending swells and tax revenue declines. The country’s credit rating outlook was lowered by Standard and Poor’s last week on concern the Democratic Party of Japan-led government lacks a plan to rein in the debt load.
“I’m wondering whether the government is appropriately managing the economic and fiscal policies,” Hayashi said. “If the DPJ carries out the spending increase it has pledged in its manifesto, what’s going to happen to Japan’s fiscal condition? I’m worried about whether it will hit 10-year bond yields.”
Yields on Japan’s benchmark 10-year bonds were at 1.325 percent at 10:41 a.m. in Tokyo, little changed from when the DPJ ousted the LDP in August last year.
Prime Minister Yukio Hatoyama’s party came to power for the first time promising to support households through initiatives such as child care allowances and free high school tuition.
Record Budget
Parliament has begun debating Hatoyama’s record 92.3 trillion yen ($1 trillion) budget for the year starting April 1. Finance Minister Naoto Kan said the government will need to find an extra 6 trillion yen to fund social welfare spending in the following fiscal year, the Nikkei newspaper reported today, citing an interview.
S&P’s move last week is “an early warning” for the government’s debt management, Hayashi said. The credit-rating company lowered the outlook on Japan’s AA sovereign credit rating to “negative.”
The LDP had set a target to balance the budget, only to abandon it last year after then Prime Minister Taro Aso released three stimulus packages totaling 25 trillion yen amid the country’s worst postwar recession. Hayashi held the economy portfolio for two months until the LDP was ousted for only the second time in half a century.
National Strategy Minister Yoshito Sengoku last week said the government needs to consider S&P’s warning as a “wake-up call.” Kan said it’s “extremely important to maintain fiscal discipline.” The two ministers are working to formulate a mid- term fiscal strategy by June.
‘Significant Blow’
Hayashi said Japan’s debt may soon exceed the value of the nation’s net household assets, and that will be a “significant blow” for the country’s fiscal sustainability. The remarks echoed comments made by former Finance Minister Kaoru Yosano last month.
Yosano, who was in Aso’s Cabinet with Hayashi, said Japan is facing an “uncontrollable rise” in bond yields as the difference between the public debt and net household savings narrows. The DPJ “doesn’t have a sense of crisis about this,” Yosano said in an interview.
Households held 1,065 trillion yen in financial assets after subtracting their liabilities, Bank of Japan figures show. The national debt will probably swell to 973 trillion yen by March 2011, according to the Finance Ministry.
Hayashi is a graduate of the University of Tokyo, and studied at Harvard University’s John F. Kennedy School of Government.
He said the Bank of Japan should go back to the type of quantitative easing it adopted for five years until 2006 should deflation deepen in the first half of this year. Under that policy, the central bank kept the banking system awash with cash by increasing the amount of funds available to lenders. Hayashi said the measure was “somewhat effective.”
Hayashi also said the government’s declaration of deflation in November was “too early” and worsened consumer sentiment, which slumped to a six-month low in December.
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