Japan Stands Ground On Fiscal Steps After G7

Japan stood its ground on Monday against promising quick fiscal measures to boost its economy, despite united calls from its Group of Seven partners for it to act and fresh evidence of economic weakness. I did not make any pledge to form a supplementary budget for the fiscal year 1998/99, although some media reports said I did, finance minister Hikaru Matsunaga (above) told reporters after returning from a meeting of G7 finance ministers in London at the weekend.

Earlier, vice finance minister Eisuke Sakakibara told reporters: What we said is that we will try to pass the fiscal 1998 budget as quickly as possible. He added that Japan made no promises at the G7 meeting about what it might do beyond that.

 

The G7, which also groups the United States, Germany, Britain, France, Italy and Canada, singled out Japan for its weak economy and cited a view that Tokyo needs to boost the economy with fiscal measures.

In Japan, activity is low, and the outlook is weak, the G7 said in a statement after the meeting. While the group praised Japans financial reforms, it added: In the view of the IMF (International Monetary Fund) there is now a strong case for fiscal stimulus to support activity during 1998.

The chief government spokesman, Kanezo Muraoka, specifically denied Japan had promised to compile a stimulative supplementary budget for the coming fiscal year.

Vice Trade Minister Osamu Watanabe also weighed in, saying that steps the government had already undertaken would lead to an improvement in the economy.

The Economic Planning Agency, meanwhile, underscored the frailty of Japans economy, saying that a key gauge of current economic health, the diffusion index of coincident economic indicators, fell below the boom or bust 50 mark for a third straight month in December, and would likely stay below that line for January.

The yen slid to more than 129.00 to the dollar in Tokyo, its weakest level since January 20, partly on Sakakibaras remark that there had been no promises of fiscal steps. Japanese government bond prices rose sharply, while shares fell.

The G7 had issued another veiled call for a stronger yen, saying: We emphasised that it is important to avoid excessive depreciation where this could exacerbate large external imbalances.

Haruhiko Kuroda, director-general of the Finance Ministrys International Finance Bureau, insisted that the weekend statement was stronger than that issued at the previous G7 meeting in Hong Kong in September and added that he hoped the markets would read it thoroughly.

The Hong Kong statement had called for avoiding declines that could lead to rather than exacerbate large external imbalances.

Both statements, while not specifying a country or currency, are seen as calling for Japan not to export its way to recovery on the back of a weak yen.

Sakakibara said Japans foreign exchange policy was unchanged but declined to comment on Mondays moves in the currency markets.

The ministry has repeatedly said in the past that it is ready to take decisive action in the case of excessive declines of the yen.