By Leika Kihara
TOKYO (Reuters) -Japan must balance its budget and push the central bank to raise interest rates to alleviate concern over the country’s finances, Taro Kono, touted as a candidate to become the next prime minister, said on Wednesday.
Kono also criticised former Prime Minister Shinzo Abe’s “Abenomics” reflationist policies, saying the country needs to shift to policies that focus more on structural reforms and cuts to government expenditure.
The remarks by Kono, a former minister in charge of digitalisation, pit him against Sanae Takaichi, another candidate vying for the premiership, who has advocated in favour of big spending and loose monetary policy.
“The size of the budget has been growing and growing, so it’s time for us to say we really need to balance the budget,” cut unnecessary expenditure and streamline the social security system, Kono told a news briefing at the Foreign Correspondents’ Club of Japan.
Political calls to cut taxes and boost payouts would also increase the budget deficit, a concern that has heightened volatility in the bond market, he said.
“That’s why I’ve been saying the government needs to ask the Bank of Japan to raise interest rates and in return, the government will streamline expenditure and try to balance the budget,” he said.
Kono, a veteran lawmaker who has also served as foreign minister, ran unsuccessfully in the ruling Liberal Democratic Party’s (LDP) leadership race last year where incumbent premier Shigeru Ishiba won.
The LDP’s huge loss in last month’s upper house election has led to growing calls from within the party for Ishiba to step down, and to hold another race to choose a new leader.
Kono’s hawkish fiscal stance makes him an outlier in Japan’s current political circle, where most ruling and opposition party lawmakers favour boosting spending to support a fragile economy.
Kono said Abenomics – a policy introduced by deceased former premier Abe in 2013 that combines massive monetary stimulus, flexible fiscal spending and a growth strategy – focused too much on reflating the economy.
With the economy out of deflation and experiencing rising inflation, Japan needs a new economic policy that puts more emphasis on structural reform, he said.
“There are still people in LDP, mostly former members of the Abe faction … who still don’t want to say the age of Abenomics is over,” Kono said. “I think they are wrong. We definitely need to bring in structural change.”
(Reporting by Leika Kihara; Editing by Saad Sayeed)
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