Prime Minister Naoto Kan has said that Japan's public finances are the "worst of any developed country". He promised to bring in a fiscal policy to reduce the public debt, which is almost twice the size of Japan’s GDP.
Popularity ratings for the Democratic Party of Japan have gone up since Naoto Kan took office
Japanese Prime Minister Naoto Kan warned on Friday that Japan could default on its borrowing if it failed to reign in its massive debt.
"We cannot sustain public finance that overly relies on issuing bonds," he told parliament in his first policy speech. Kan took office last Friday after his increasingly unpopular predecessor, Yukio Hatoyama, resigned.
Postal reform minister Shizuka Kamei stepped down on Friday just days after taking up his post
"If we maintain the current level of issuance of new bonds, outstanding debt will surpass 200 percent of GDP in a few years," Kan said.
"Like the confusion in the eurozone triggered by Greece, there is a risk of collapse if we leave the increase of the public debt untouched and then lose the trust of the bond markets," he added.
Resignation of outspoken minister
The former finance minister was speaking just hours after Shizuka Kamei, the leader of the People's New Party, resigned as postal reform and financial services minister in protest against the fact that the cabinet failed to enact legislature to scale down privatization of the post office.
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He will be replaced by Shozaburi Jimi, the secretary general of the People's New Party.
Analysts said that the departure of the outspoken Kamei would pave the way for Kan to bring in his fiscal reforms more easily. Kan also wants to eliminate wasteful spending. He said his government would announce a growth strategy by the end of the month to promote green technology and to support tourism.
Since Kan took over, support for the Democratic Party of Japan (DPJ) has increased according to major opinion polls. The party is hoping to win elections to the upper house next month.
Editor: Thomas Baerthlein