June 5, 2018 / 9:31 AM / 4 months ago

Japan must adopt enforceable, flexible budget rules: finance ministry official

TOKYO (Reuters) - Japan must adopt “enforceable and flexible” fiscal rules to restore its tattered public finances although it should not force any drastic measures given a fragile economic situation, a senior finance ministry official said on Tuesday.

Toshinori Doi, president of the ministry’s Policy Research Institute, expressed this view shortly after the government pushed back to fiscal 2025 fiscal discipline targets aimed at achieving a budget surplus. The prior goal was fiscal 2020.

“We cannot or probably should not do anything drastic at the moment. While financial markets remain calm, we must pave the way for fiscal reform and steadily implement it in order to prevent a crisis,” Doi told Reuters on the sidelines of the Tokyo Fiscal Forum.

The two-day annual conference, co-hosted by the ministry, the International Monetary Fund and Asian Development Bank Institute, addressed innovations in fiscal rules, infrastructure governance and digital innovations in public financial management.

Growth in Asia provides a perfect opportunity for regional economies to rebuild fiscal buffers and tackle fiscal reform needed to guard against a potential financial crisis, Doi said.

But he said it was not realistic for Japan to follow suit at this stage as it has not even achieved a primary budget surplus excluding new bond sales and debt-servicing costs.

Doi noted that some participants at the closed-door forum called the Bank of Japan’s massive debt purchases both a blessing and a curse. This shows that the purchases help keep government borrowing costs low but could cause loss of fiscal discipline at the same time, he said.

“Bond markets showed speculative moves many times in the past as some investors bet Japan’s long-term interest rates to rise. For good or for bad, markets are being unresponsive now.”

Doi urged the government to proceed with a planned sales tax hike to 10 percent from 8 percent in October 2019, but did not comment on whether further hikes would be needed.

“We should wait to see what will happen to the economy after raising the sales tax next year, then think what to do next,” he said.

Reporting by Tetsushi Kajimoto; Editing by Richard Borsuk

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