TOKYO (MNI) – Japanese Prime Minister-elect Naoto Kan said on
Friday that he will pursue a policy of achieving a combination of strong
economic growth, fiscal consolidation and social security.

He also told a news conference that he will discuss the need for a
sales tax hike with members of his cabinet and senior policymakers of
the ruling Democratic Party of Japan that he plans to pick by early next
week.

With only around a month to go before upper house elections, Kan
declined comment on the need for raising the 5% consumption (sales) tax
but added that “I won’t change what I said in the past.”

“As for the consumption tax, I have commented on it within my role
as the finance minister and expressed my own view, but from now on, as
the leader of the party, or the prime minister after I’m officially
sworn in, I wish to set direction for this issue — including how to
term it — after forming the new cabinet and new party leadership,” he
said.

Kan said that he will revisit the tax issue as the necessity arises
but will first consult his colleagues.

As finance minister Kan called for a tax hike to allow the
government to secure a stable funding source for additional public
spending on job creation. Its intention is to help Japan move out of
stubborn deflation.

But Yukio Hatoyama, who announced his resignation as Prime Minister
on Wednessday, repeatedly said he would not raise taxes for four years
from August 2009 — the mandate voters gave the DPJ last year for the
maximum term of the current lower house members of parliament

Kan blamed “a mistake” in Japan’s past economic and social policies
under the Liberal Democratic Party, which is now in opposition, for two
decades of stagnation that is reflected in the high rate of suicides —
around 30,000 people every year — and high youth unemployment.

“I believe that we can implement a combination of a strong economy,
a strong fiscal position and strong social security,” he told his fellow
DPJ lawmakers earlier on Friday.

He repeated his remarks at the evening news conference, adding that
he will show the path toward this combined policy goal “step by step,”
without giving any timeframe.

Kan told reporters that there must be a reason for the policy
mistake that the Hashimoto administration made in 1997, when it hurried
the process of fiscal consolidation, hurting the economy in the wake of
the Asian financial crisis.

Japan’s sales tax took effect on April 1, 1989, with an initial 3%
rate on goods and services. In April 1997, then prime minister Ryutaro
Hashimoto raised it to 5%, following the decision to do so by the
previous government.

Kan was elected prime minister in parliament on Friday afternoon,
succeeding his fellow DPJ lawmaker and long-time ally Hatoyama, who
resigned as because of broken election campaign promises.

The co-founder of the DPJ, Kan was deputy prime minister in the
Hatoyama administration. He also held the finance and economic policy
cabinet portfolios.

After less than nine months in power, Hatoyama announced his
resignation after failing to deliver the key election campaign promise
to relocate a controversial U.S. air base outside the tiny southern
island of Okinawa.

Kan said his government needs to honor the Japan-U.S. agreement
that Futenma Air Base in the middle of a residential area should be
moved to the shore of Henoko on Okinawa.

Before the lower house elections last August, Hatoyama, who headed
the DPJ, vowed to relocate the key U.S. military base on Okinawa
somewhere outside the prefecture or even outside the country given the
heavy presence of U.S. forces on the tiny island, the site of one of the
fiercest battles between the U.S. and Japanese troops in the closing
days of World War Two.

The DPJ scored a landslide win in the elections, taking power away
from the LDP. Months later Hatoyama found that the U.S. government would
not agree to his relocation idea and no other prefectures would accept
the air base.

The row over the U.S. military presence led to the departure of the
Social Democratic Party, one of the two small coalition partners, at the
weekend. That has complicated the passage of bills in the upper house of
parliament where the DPJ only has a majority thanks to the support of
its allies.

msato@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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