Japan's likely next PM says may loosen fiscal discipline for growth - WSJ

TOKYO Fri Nov 23, 2012 7:54am GMT

Shinzo Abe, former prime minister and leader of Japan's main opposition Liberal Democratic Party (LDP), attends a news conference at the LDP headquarters after the dissolution of the lower house was announced in Tokyo November 16, 2012. REUTERS/Toru Hanai

Shinzo Abe, former prime minister and leader of Japan's main opposition Liberal Democratic Party (LDP), attends a news conference at the LDP headquarters after the dissolution of the lower house was announced in Tokyo November 16, 2012.

Credit: Reuters/Toru Hanai

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TOKYO (Reuters) - Japan's main opposition leader and possible next prime minister, Shinzo Abe, said once in power his party would propose a vast 200 trillion yen ($2.4 trillion) public works package and would not feel bound by the present government's pledge to avoid an increase in borrowing.

In an interview with the Wall Street Journal published on Friday, Abe was also quoted as saying that he would consider postponing sales tax increases agreed in August by his party and the ruling Democrats if the economy continued to be mired in deflation.

"If we judge that we are not on our way out of deflation, I think we would decide not to raise the tax," he said.

Credit rating agencies have said that the tax hikes and commitment to restrain new borrowing were the first, necessary steps to contain Japan's record public debt and avoid credit downgrades.

Abe's Liberal Democratic Party leads in opinion polls ahead of the December 16 general election, which puts the former prime minister in pole position to return to the post he quit in 2007 after just a year in office.

Since taking over as party leader in September, Abe has been calling for "unlimited" monetary easing going far beyond what the Bank of Japan has done to beat deflation and prop up an economy heading for its fourth recession in a decade.

He said monetary policy alone could not defeat deflation and fiscal policy also had to play its part.

The LDP has floated the idea of large-scale public works spread over a number of years to spur economic recovery - the party's signature policy during a half a century of its nearly uninterrupted reign that ended in 2009 with the Democrats' victory.

On Wednesday the party pledged in its campaign platform to roll out a large extra budget to stimulate the economy, but gave no indication of its size. Abe also did not say over what period the 200 trillion yen spending would be spread.

Abe's calls for aggressive monetary easing have helped weaken the yen.

Speaking separately in western Japan on Friday, the opposition leader suggested Japan was lagging behind other countries in using loose monetary policies to keep the currency in check.

"Many countries are printing money to support the economy and help their own currencies being weakened. That's how they become competitive," Jiji news agency quoted Abe as saying. "Japan is behind in this competition."

However, in the WSJ interview Abe suggested he would less inclined to resort to market intervention to weaken the currency.

"Intervention is hardly effective," he was quoted as saying. "It hasn't been effective so far." ($1 = 82.5450 Japanese yen)

(Reporting by Junko Fujita and Tomasz Janowski; Editing by Kim Coghill)

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