Japan PM hints at additional economic stimulus

http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/1073048/1/.html

TOKYO : Japanese Prime Minister Naoto Kan on Tuesday said he would consider whether additional steps to boost the economy were needed amid fears Japan's recovery is losing steam.

Separately, finance minister Yoshihiko Noda suggested that the government might be reluctant to intervene in foreign exchange markets, as the greenback hit 85.83 yen, its lowest rate against the Japanese currency since November.

If sustained, a stronger yen could erode repatriated overseas profits and make goods more expensive overseas, threatening the export sector that Japan depends on to offset its weak domestic situation.

Japan limped out of recession in spring 2009 but its recovery has been fragile, with recent data pointing to signs that export- and stimulus-led recovery may be stalling.

Last week, the government said that unemployment had increased to 5.3 per cent in June, its highest since November and above market expectations of 5.1 per cent.

And industrial output surprised the market by falling 1.5 per cent in June from the previous month.

The latest data pose a challenge for Kan's government, which must balance Japan's uncertain economic reality with an agenda that has prioritised cutting the industrialised world's biggest public debt.

"The labour situation is still severe and economic conditions overseas have not necessarily stabilised," Kan, who took the leadership less than two months ago, told a budgetary committee of the parliament's lower house.

"We have come to a point where we will have to consider whether taking action in any way is necessary," he said after a lawmaker urged the government to take additional measures to stimulate the economy.

Fears that Japan's export-dependent growth could enter a sustained slowdown have been heightened by the looming expiry of subsidies such as tax rebates for households and incentives for purchasing environmentally friendly cars.

Noda's latest comments addressing the yen's strength came as the dollar tumbled against major currencies on fears of further monetary easing in the United States.

"Our fundamental stance is that foreign exchange rates are something that should basically be set by the market," Noda said during a session of the lower house's fiscal and financial committee.

He declined to say whether he would order market intervention to push the yen lower.

The dollar plunged below 86 yen soon after his comments, hitting its lowest level since November 2009.

Kan also renewed discussion of raising the consumption tax, even though similar remarks contributed to his Democratic Party's setback in upper house elections last month.

He said it was "matter of course" for lawmakers to seriously debate drastic tax reform to cope with ballooning social welfare costs and reduce the country's public debt, which is nearly twice the size of its GDP.

Kan previously raised the possibility of doubling consumption tax from the current five per cent. - AFP/ms