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Japan's Finance Minister warns of eurozone-style debt crisis

(Xinhua)

10:13, January 25, 2012

TOKYO, Jan. 24 (Xinhua) -- Japanese Finance Minister Jun Azumi said Tuesday that Japan could be facing a eurozone-style sovereign debt crisis if its fiscal goals are not met and its ballooning public debt not reined in.

"As we can see in the government debt problems in Europe, leaving deteriorating finances as they are would pose significant risks for stable economic growth," Azumi said in a policy speech in Tokyo on the first day of parliament.

With public debt now at more than double the size of the nation 's 5 trillion U.S. dollars economy, the worst in the industrialized world, and ruling and opposition parties deadlocked over a plan to double the 5 percent sales tax by 2015 to boost public finances and fund social security, Azumi said that the nation's worsening finances pose a huge risk to Japan's economic future.

The finance minister also said that issues of tax and social security reforms need to be addressed immediately, in the best interests of the nation's growth prospects.

"We need to tackle fiscal reform as soon as possible and lay a foundation for stable economic growth through an integrated reform of tax and social security."

He said his ministry will work closely with the Bank of Japan to tackle the nation's lingering deflation and liaise closely on ways the central bank and the finance ministry can strengthen the economy, including taking a proactive stance on the yen's appreciation and maintaining loose monetary policy while necessary.

For its part, the central bank here on Tuesday cut its growth forecast for the nation's economy in fiscal 2011 and 2012, citing downside pressures from a slowdown in overseas economies, a firm yen and waning post-quake reconstruction demand.

The economy is expected to shrink 0.4 percent in fiscal 2011, the central bank said, reversing previous projection for a 0.3 percent growth. For fiscal 2012 the BOJ also cut its economic forecast to 2 percent, slightly lower than a previous estimate of 2.2 percent made in October.

"Japan's economic activity has been more or less flat, mainly due to the effects of a slowdown in overseas economies and the appreciation of the yen," the BOJ said in a statement.

Although the BOJ maintained its key interest rate at effectively zero and raised its GDP projection for fiscal 2013 to 1.6 percent in real terms, slightly higher than previous forecast of 1.5 percent, the bank also warned that Japan was not immune to the sovereign debt crisis in the eurozone.

Azumi said the government is still planning to submit bills related to the planned sales tax hike to parliament by the end of March in a bid to restore the nation's finances and stave off a eurozone-style crisis, despite the fact that opposition parties are refusing to discuss the matter in parliament.

The government is planning to issue debt totaling a record 2.26 trillion U.S. dollars next fiscal year, Azumi said, adding that he would strive to ensure global markets were onside and had faith in Japan's fiscal discipline.

"I will steer debt management appropriately while carrying out issuance based on market needs and trends through close dialogue with the market," Azumi added.

Japan's public debt will finance almost 50 percent of the 2012 and 2013 draft budget the finance minister said, with spending in the period likely to total 1.24 trillion U.S. dollars, due to ballooning reconstruction and pension costs.

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