TOKYO: Japan's central bank chief on Monday pressed the government to speed up fiscal reforms to ease the industrialised world's largest debt, after ratings agency Standard & Poor's cut Japan's credit rating."Japan's fiscal situation is of course in very bad shape," Bank of Japan Governor Masaaki Shirakawa told reporters in Tokyo. "As history shows, no country can continue to run fiscal deficits forever."
Shirakawa said the eurozone debt crisis served as a warning to Japan over what could ensue if appropriate fiscal reforms were not carried out."Once confidence in fiscal sustainability erodes, this will result in an adverse feedback loop among fiscal conditions, the financial system, and the real economy, with negative consequences for economic activity," he said.
"It is therefore necessary to fully recognise that an improvement in the fiscal balance cannot be achieved without efforts to both reduce expenditures and increase revenues in real terms," he added.Last month S&P cut Japan's credit rating one notch to "AA-" from "AA", accusing the government of lacking a "coherent strategy" in efforts to ease the highest debt proportional to GDP of any developed nation, at around 200 percent.
It was the first downgrade of a G7 member since Italy in October 2006, and underlined mounting problems with national debts since the 2008 financial crisis. Four eurozone members including Spain suffered downgrades last year.
Shirakawa noted that despite the downgrade, Japanese government bond yields remain stable because investors still expect Japan "ultimately has a strong will" to fulfil fiscal and tax reforms."To put it the other way around, Japan should appreciate and make every effort to maintain the confidence shown by markets while working on mid- to long-term fiscal consolidation," he said.Prime Minister Naoto Kan's centre-left government is working towards drafting a proposal by June on overhauling the nation's tax system, but the opposition has so far refused to begin talks over the issue.
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