Japan must tackle debt to avoid rate cut, PM says
Tokyo’s debt of more than twice its gross domestic product will be a big burden if country continues to drag its feet on reforms
Tokyo (AP) Japan’s prime minister, attempting to build support for painful f iscal reforms, said on Saturday that the country should be alarmed by ratings cuts in Europe and must tackle i ts massive public debts to avoid becoming the next target.
Japan’s debt is more than twice its gross domestic product, higher than any of the struggling European economies whose f iscal problems have set off a Eurozone crisis that has reverberated in markets around the world. Japan’s credit rating was downgraded last year, and Prime Minister Yoshihiko Noda said it could be further harmed if the country is seen as dragging its feet on reforms.
Noda commented during a live TV talk show following ratings agency Standard & Poor’s downgrade of nine European countries, including France, one of the strongest economies in the Eurozone.
“Even France got i t s credit ratings changed,” Noda said. “We’ll be in a spotlight if Japan makes an impression that we are dwelling on the current f iscal policy and just let it slide. We must tackle the problems with considerable sense of crisis.”
Cooperation
The rating agency ended France and Austria’s triple-a status on Friday. It lowered Italy’s and Spain’s by two notches and did the same for Portugal and Cyprus. S&P also cut ratings on Malta, Slovakia and Slovenia. France’s downgrade to AA+ lowers it to the level of US long-term debt, which S&P downgraded last summer.
Noda, who took office in September, reshuffled his Cabinet on Friday in a bid to win cooperation from the opposition and voters to raise the sales tax and rein in the bulging fiscal deficit. He named Katsuya Okada, a former foreign minister, as deputy prime minister to spearhead the efforts.
Noda says Japan urgently needs to reduce its debt burden as the nation ages and its labour force shrinks, putting a greater burden on the social security and tax systems. He has promised to submit a bill by the end of March to raise the 5 per cent sales tax in two stages, to 8 per cent in 2014 and to 10 per cent by 2015.
The plan is unpopular not only among the public and in the divided parliament, but within Noda’s own Democratic party. Powerbroker Ichiro Ozawa and his supporters arguing that raising taxes would hurt the already weak economy.