TOKYO, Dec 28: Japanese Finance Minister Masajuro Shiokawa vowed on Saturday to continue to curb public investment beyond next year in an effort to offset the country’s massive government deficit.

Despite the restraint, the government’s balance sheet might not move into the black until around 2012, two years later than expected, he told a seminar in Osaka, according to local media.

It cannot be helped but it should wait until around 2012, Shiokawa said.

At the same seminar, Financial Services Minister Heizo Takenaka renewed pressure on the Bank of Japan to further ease its monetary policy to save Japan from the throes of deflation.

Deflation is conspicuously a financial phenomenon. As the watchdog on prices, the Bank of Japan may need to show a scenario on how to overcome deflation, said Takenaka, who also serves as state minister for economic and fiscal policy.

Shiokawa said that the government target of reducing public investment, including public works spending, by more than three percent for the fiscal year to March 2004 would be carried over in the years ahead.

A draft fiscal 2003 budget, announced by his ministry a week earlier, cut public investment by 3.7 per cent from the initial budget for the preceding year to $74.3 billion.

Of that, public works spending accounts for 8.1 trillion yen, down 3.9 per cent.

The ministry had originally considered slashing public investment by some 10 per cent but Prime Minister Junichiro Koizumi and his ministers backtracked under pressure from ruling coalition politicians who insisted public works were still necessary for economic pump-priming.

At one point in the process of deliberation at the ministry, the margin of reduction was set at three per cent.

Shiokawa told the seminar that it would be necessary to carry over for several years beyond the fiscal 2003 year the ideas of reducing public investment by three per cent and discretionary spending, including official development assistance, by two per cent.

This was discussed by the three ruling coalition parties, he added.

The draft budget, worth 81.8 trillion yen, includes a record 36.5 trillion yen in new bond issues covering 44.6 percent of the total amid falling tax revenues.

Koizumi has already had to break a promise in the current fiscal year to hold new bond issues at 30 trillion yen in a bid to reduce exploding national debt.

Japan’s outstanding official debt is forecast to hit a record 705 trillion yen at the end of this fiscal year, equivalent to 141 percent of nominal gross domestic product — the highest of all industrialised nations.

Takenaka expressed his displeasure with Bank of Japan governor Masaru Hayami’s refusal to further ease monetary policy by such a measure as the expansion of money supply through quantitive financial deregulation at a time when interest rates are near zero.

The biggest problem now is not at such a level as whether or not the Bank of Japan takes a step to set price targets, he said.

Hayami, who will retire in March, has resisted unorthodox, artificial moves such as setting a positive inflation target to reverse sliding prices that have restricted economic growth.—AFP