Japan targest debt

Japan's ruling party vows to drive down debt

AOL News

(June 17) -- Japan's ruling party, under new Prime Minister Naoto Kan, made confronting the country's massive debt its policy priority in a new party manifesto released today.

The move charts a more pragmatic course for the center-left Democratic Party of Japan, and is likely to please holders of Japanese government bonds and foreign investors as the party gears up for a fierce election battle.

The DPJ won power last August promising to shift funds from "concrete to people" -- in the form of social benefits like a child-rearing subsidy -- and cut wasteful government spending. But analysts say the party promised far more than it can deliver, especially given Japan's debt burden.

Japan's debt is almost twice its gross domestic product, the highest ratio of any industrialized country, and a chorus of voices has warned that the ballooning yearly deficits are unsustainable. Kan himself warned on June 11 that Japan could face a "Greece-like" debt crisis unless Tokyo began to live within its means.

That speech, and today's news, was seen as laying the groundwork for a controversial sales tax hike from 5 percent to 10 percent or more, a move that would help bring in government revenue to finance the DPJ's ambitious social spending plans. Reuters reported that the DPJ will open a debate on the issue, and that it will release a plan for reducing Japan's debt next week.

The DPJ now aims for GDP growth of more than 2 percent and a balanced "primary" budget within a decade, according to the Wall Street Journal. Bloomberg reported that the DPJ has pledged to halve the ratio of government deficit to GDP, which is now about 7 percent, by fiscal 2015. And the party has backed away from populist plans to slash a gasoline tax and highway tolls.

With his new focus on Japan's economic health, Kan is positioning himself as a pragmatic, left-leaning leader, in the style of former British Prime minister Tony Blair or former U.S. President Bill Clinton, who also prioritized deficit-cutting in the early 1990s before pursuing other social initiatives. "Kan, a veteran of Japan's reformist, pragmatic left, is at once trying to unleash and humanize Japanese capitalism," wrote Japan-watcher Tobias Harris in a comment on his blog.

Kan, who took power last week, has seen a surge of popularity since replacing his indecisive predecessor Yukio Hatoyama. Kan's approval ratings are at 60 percent or higher.

To cash in on Kan-mania, Japanese businesses have rushed to produce Naoto Kan mugs, masks, and "Yes We Kan" T-shirts. His party hopes his popularity will give them a much-needed boost ahead of July 11 elections for the upper house of parliament, but some polls have suggested the "Kan effect" may be short-lived.

The DPJ controls the lower house and so will stay in power regardless of the election's outcome. But a good showing on July 11 could give it a stronger mandate for pushing reforms, and greater clout over coalition partners.

Kan, a former grassroots activist for women's rights and other issues, gained fame for taking on the bureaucracy as health minister in the mid-1990s in a scandal over tainted blood. He showed a knack for public relations in 2004 when he famously went on a well-known pilgrimage of Buddhist temples to atone for a scandal in which he was found to have skipped his payments into Japan's pension system. He's known to have a short fuse.

Under Hatoyama, Kan was the point man for the DPJ's effort to reduce the bureaucracy's clout and shift power to elected politicians, in a campaign to revive Japan's sclerotic democracy.

Kan's wife has also attracted media buzz for her blood ties to the new prime minister (the couple are first cousins) and for her reported tongue-lashings of Kan at home and in public.

Kan has signaled a more pragmatic approach to relations with the U.S., especially the thorny issue of U.S. military bases in Okinawa, which are unpopular with locals and a long-standing bone of contention. Hatoyama pledged to move a key U.S. Marines air station off Okinawa completely during his campaign last year, only to reverse himself in May and agree to abide by a 2006 deal with the U.S. to relocate some of those Marines to another site within Okinawa.

The issue was the straw that broke Hatoyama's back, amid mounting disillusionment in Japan with his leadership style, and a campaign funding scandal in which he was found to have received massive donations from his mother.

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