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Home / World / Economic challenges facing Japan as PM quits

Economic challenges facing Japan as PM quits

Shinzo Abe's abrupt decision to resign raises concerns that political uncertainty could delay and complicate debate on Japan's economic policies.

world Updated: Sep 13, 2007, 12:44 IST

Prime Minister Shinzo Abe's abrupt decision to resign raises concerns that political uncertainty could delay and complicate debate on Japan's economic policies.

Following are key economic challenges and planned events:

Tax and fiscal reform

- The government had vowed to start full-fledged debate on tax reform from around this month as part of efforts to rein in a mountain of state debt. The focus is on whether the politically sensitive consumption tax will be raised from the current 5 percent to help finance rising social welfare costs. Many economists now expect debate on raising the tax to be postponed until next year or later. Some say the ruling Liberal Democratic Party's defeat in the July 29 upper house election could make lawmakers more lenient towards pork-barrel spending, slowing fiscal consolidation efforts.

- The government normally compiles a budget by late December for the fiscal year starting April 1. Spending requests from various ministries have been submitted to the Ministry of Finance but talks could stall until Abe's successor forms a new cabinet. The government's top economic council cancelled this week's meeting and no schedule has been set for future meetings. The council was supposed to discuss steps to revitalise regional economies and other economic policies.

Choosing new BOJ governor

- Bank of Japan Governor Toshihiko Fukui and his two deputies reach the end of their five-year terms next March. The appointment of the central bank governor needs approval from both houses of parliament. The main opposition Democratic Party, along with other opposition parties, now holds a majority in the upper house after its victory in the July election and can block the appointment. BOJ Deputy Governor Toshiro Muto has long been seen as a leading candidate to replace Fukui, but opposition by senior Democratic Party members could complicate the selection.

US beef imports

- Japan and the United States have been in talks to review guidelines that limit imports of U.S. beef to cattle aged 20 months or younger.The restriction was put in place when Japan lifted a ban on U.S. beef imposed after the discovery of the first case of mad cow disease in the United States in 2003. Japanese officials are studying data from U.S. counterparts. Beef industry officials are keenly awaiting Japan's decision on the age limit, which is expected to be raised to 30 months, but are divided on whether it will come this year or next.

Disputes over gas fields

- Japan and China are both eager to develop gas fields in the East China Sea but disagree where the boundary separating their exclusive economic zones should lie.The two nations have agreed to intensify talks over developing oil and gas fields in the disputed waters and to propose concrete measures by the autumn.

Japan to chair G7/G8

- Japan will host the G8 summit meeting next July at Lake Toya on its northernmost main island of Hokkaido, where leaders of G8 industrialised nations will likely focus on environmental issues. Japan will also chair a meeting of Group of Seven finance ministers and central bankers early next year.

ht epaper

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