Japan's prime minister warned on Friday that the country's fiscal situation was unsustainable given its huge public debt, and called for multiparty tax reform talks as he struggles with a fragile economy and a divided parliament.
Naoto Kan also repeated his resolve to curb a rise in the yen that threatens to derail Japan's export-led economic recovery, urged the central bank to do more to fight deflation, and expressed hope that opposition parties would join in talks on an extra budget he wants to enact soon.
Japan's core consumer prices marked their 18th straight month of annual declines in August, as deflation grips an economy struggling with a rising yen, slowing exports and a surprise decline in output. But the jobless rate fell and the availability of jobs improved slightly, data showed on Friday.
Kan, who took office in June as Japan's fifth leader in three years, faces a tough time wooing the opposition support that is vital to enact laws since his Democratic Party of Japan (DPJ) and a tiny partner lack a majority in parliament's upper house.
The government faces the delicate task of reining in debt while keeping the economy going. Japan has built up a huge public debt burden, now nearly twice the size of its $5 trillion economy, during two decades of economic stagnation.
"If the current fiscal situation is left alone, it will be unsustainable at some point," Kan said in a speech at the start of an extra session of parliament.
He also vowed to achieve Tokyo's goal of bringing the primary budget balance, which excludes revenue from bond sales and debt-servicing costs, into the black within a decade.
Kan, whose past calls for debating a hike in the 5 percent sales tax had contributed to a July upper house election defeat, said Japan needs a social welfare system that citizens could trust even if that means added financial burden on the public.
Multiparty debate on tax reform including the sales tax is thus indispensable, Kan said, reiterating that he would seek a mandate from voters before deciding on the sale tax rise.
The government is crafting an extra budget for the fiscal year to March 31 to stimulate the economy by supporting job seekers and families with children, but has sent mixed signals about the size of the package and how it will fund it.
Some in the cabinet, such as the economics minister, have said new debt issuance should not be ruled out, but the finance minister is firmly against the idea.
National Strategy Minister Koichiro Gemba has said Japan could fund measures worth around 4.6 trillion yen ($55 billion) by tapping reserves, thereby avoiding new bond issuance.
"The biggest task for this parliamentary session is enacting a supplementary budget to finance economic steps. I sincerely hope for constructive debate among ruling and opposition parties," Kan said in the speech.
Efforts to gain such opposition support will be complicated by a bitter feud with China.
Kan is under fire for appearing to cave in to Beijing's demands to free a Chinese fishing boat captain detained last month after his trawler collided with Japanese patrol boats near disputed islands in the East China Sea.
The prime minister on Friday reiterated that good ties with China, in the process of replacing Japan as the world's second-biggest economy, were vital but also expressed concern about Beijing's military buildup and aggressive maritime activities.
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