More fiscal stimulus may add to Japan debt woes

PUBLISHED : Wednesday, 16 January, 2013, 12:00am
UPDATED : Wednesday, 16 January, 2013, 3:41am

Japan's debt burden will become "more serious" as its government takes extra steps to stimulate growth in the world's third-biggest economy, according to an International Monetary Fund economist.

"The debt overhang is becoming more serious so they need to go further in fiscal consolidation," IMF deputy managing director Zhu Min said at the Asian Financial Forum in Hong Kong yesterday.

Japan announced a 10.3 trillion yen (HK$893 billion) fiscal stimulus last week as Prime Minister Shinzo Abe followed through on election pledges to weaken the yen, counter deflation and spur economic growth.

The risk is that the nation's debt burden, estimated by the IMF at 237 per cent of gross domestic product last year, will lead to a surge in government bond yields.

The Bank of Japan will meet next week to decide whether to ease monetary policy for the fourth time in five months and will adopt a 2 per cent inflation target advocated by Abe, according to people familiar with officials' discussions.

Central bank governor Masaaki Shirakawa said the economy remained weak, with exports and production decreasing, and that he planned to continue "powerful" monetary easing.

Zhu said there was "still a little room for monetary policy" in Japan against the background of rising debt. He said the nation had "room to maneuver" because of its "huge" domestic savings pool.

Japanese stocks rose yesterday, with the Nikkei 225 Stock Average headed for its highest close since April 2010, as the yen traded near its lowest against the dollar since June 2010.

The global economy was "a little bit stronger" in 2013 compared with the previous year, said Zhu, a former People's Bank of China deputy governor and group executive vice-president at the Bank of China.