TOKYO: Japanese Prime Minister Sanae Takaichi on Friday (Feb 20) pledged to break with "excessive fiscal austerity" and boost long-term investment through a multi-year budget framework, underlining her administration's commitment to revitalising the economy.
At the same time, in a nod to growing market concerns about Japan's worsening finances, she vowed to set specific indicators to measure progress in getting the nation's fiscal house in order.
Takaichi’s remarks highlight a core financial risk - her flagship spending plan must rejuvenate the world's fourth-largest economy without triggering debt jitters that could unleash another slide in the yen and government bonds.
In a policy speech to parliament, Takaichi repeated her resolve to pursue "responsible, proactive fiscal policy" aimed at increasing investment in areas like artificial intelligence, chips and shipbuilding to lift Japan's potential growth.
"My administration will break with the long-standing trend of excessive fiscal austerity and chronic underinvestment for the future," Takaichi said, adding that Japan should not hesitate to increase spending to support private investment.
Known as an advocate of loose fiscal and monetary policy, Takaichi led her ruling party to a landslide victory in a general election on Feb 8 with a pledge to boost spending and suspend by two years a consumption tax on food.
Her calls for big spending and tax cuts sparked a selloff in government bonds and the yen late last year, as investors fretted over how Japan - labouring under the developed world's highest debt burden - would fund her big spending plans.
Takaichi said that to make government initiatives more predictable for firms, her administration will overhaul the way state budgets are drafted such as by promoting multi-year budgets and long-term investment funds.
In Japan, the government sets single-year budgets where expenditure is appropriated for one year instead of spanning several years to ensure spending is scrutinised by parliament.
"For crisis-management and growth investments that generate returns exceeding the investment cost and contribute to GDP growth, we will manage them under a separate, multi-year budget framework," she said.
"At the same time, we will not adopt reckless fiscal policies that undermine market confidence," she said, pledging to seek revenues through cuts to some existing subsidies.
The government will also keep the pace of debt increase within the rate of economic growth and steadily lower Japan's debt-to-GDP ratio to ensure fiscal sustainability, she said, adding it will set specific indicators to measure progress. - Reuters
