Japan could face debt crisis similar to Greece, warns PM

New prime minister Naoto Kan warned today that Japan could face a debt crisis like Greece if it did not deal urgently with its swelling national debt.

Mr Kan, speaking in his first address to parliament after taking office this week, said Japan, the world's second-largest economy, could not continue to rely on issuing bonds to pay off its debts as its coffers shrink amid an ageing and declining population.

Mr Kan, who previously served as finance minister, said his government needed drastic reform to achieve fiscal health, while proposing tax reforms and elimination of wasteful spending.

Japan has the largest public debt among industrialised nations, at 218.6 % of its gross domestic product in 2009, according to the International Monetary Fund.

"It is difficult to sustain a policy that relies too heavily on issuing debt. As we have seen with the financial confusion in the European community stemming from Greece, our finances could collapse if trust in national bonds is lost and growing national debt is left alone," Mr Kan said.

He promised his government would work closely with the Bank of Japan to avoid an increase in deflation and would focus on developing a "strong and comprehensive" policy.

Mr Kan, Japan's sixth prime minister in four years, has said he will also consider raising taxes, an issue he said previous governments had been too timid to face.

The social progressive and fiscal hawk said he would announce further details of his economic growth plan later this month, but said he aimed to have the economy grow by more than 2% annually by the 2020 financial year.

After amassing a vast public debt and overspending to the tune of 13.6 % of gross domestic product in 2009, Greece was saved from defaulting on its loans by the first instalment of a £89bn (€108.3bn) rescue package from the IMF and the 15 other eurozone nations.

Mr Kan's predecessor, the unpopular Yukio Hatoyama, quit abruptly last week after he failed to keep a campaign promise to move the sprawling US Marine Corps Air Station Futenma off the southern island of Okinawa.

His ratings had fallen below 20% on what was perceived as the weak leadership.

Major newspaper polls are giving Mr Kan approval ratings of between 60 and 70% - good news for his party heading into next month's elections.

His Democratic Party is considering a July 11 date for the polls, but that has caused a row with their coalition partner and prompted its leader to announce early his resignation from a cabinet post.

The junior coalition party wants instead to extend the current parliamentary session to vote on a key postal reform bill.

Mr Kan, a grassroots populist known for standing up to bureaucrats, is drawing support from undecided voters and "favourable winds" are blowing for the Democratic Party, said The Nikkei, Japan's top business newspaper.

The approval rating for his cabinet, installed on Tuesday, came to 68%, according to The Nikkei's survey.