Departing Finance Minister Sadakazu Tanigaki on Tuesday asked the new administration of Prime Minister Shinzo Abe to show a long-term fiscal reform commitment, which he said is crucial in winning market confidence and keeping interest rates in check.
Speaking at his last news conference since becoming finance minister in September 2003, Tanigaki repeated his belief that ensuring growth and cutting government spending alone are not sufficient to put Japan’s debt-ridden finances under control and called for an overhaul of the tax system, including a consumption tax hike from the current 5 percent.
“Winning long-term market confidence over (the nation’s) fiscal discipline is important for ensuring economic growth in the future,” Tanigaki said.
“I would like (the next administration) to deal not only with imminent tasks (for fiscal consolidation) but to show direction in fiscal management for the medium to long term, say about 10 years ahead,” he said, adding that showing such vision would be effective in forestalling long-term interest rate surges.
Tanigaki meanwhile hailed Junichiro Koizumi for assuring financial markets with his belt-tightening policies that the government is serious about fiscal reform, which he said has helped keep long-term borrowing costs at low levels.
Tanigaki, who lost handily to Abe in the Liberal Democratic Presidential race to succeed Koizumi, said the next administration cannot avoid debate over possible consumption tax hikes if the government wants to maintain the current social security system, already ailing by the graying of the population.
The government must keep cutting inefficient social security spending, but if it cuts too much, it could lead to a failure in the current system, he said.
Looking back on the past three years, Tanigaki acknowledged that Japan’s massive currency market intervention was part of government efforts to overcome deflation, a byproduct of the decadelong slump.
“We intervened because we saw sharp (exchange rate) movements that did not reflect fundamentals,” he said. “But in a broader sense, it was part of efforts to overcome deflation” in sync with the Bank of Japan’s policy of pumping excess liquidity into the financial system.
Tanigaki took the helm of the Finance Ministry in the midst of its yen-selling, dollar-buying campaign, in which more than 35 trillion yen was sold from January 2003 to March 2004 to prevent the yen’s sharp rise from undermining the fragile economic recovery.
Smooth money shift
Departing economic and fiscal policy minister Kaoru Yosano on Tuesday hailed the monetary policy shift under the administration of Prime Minister Junichiro Koizumi, which he said was achieved “without confusion.”
“Under the Koizumi Cabinet, the Bank of Japan’s independence was respected to the maximum extent,” Yosano told a news conference. “The quantitative easing policy and the ‘zero-interest-rate’ policy were terminated under such circumstances.
“As a result, we were able to see a turning point in monetary policy without turmoil,” he said.
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