Japanese Prime Minister Yoshihiko Noda said yesterday he thinks he can reach a deal with the opposition to double the five per cent consumption tax in order to shore up the country's social security system.
"I believe we can come to an understanding," Noda told journalists from overseas media organisations yesterday at his official residence in Tokyo. "I sense that our debate is beginning to jibe."
The combination of an aging society and a declining birthrate has put Japan in an "unprecedented situation" as the government seeks to rein in soaring welfare costs, Noda said. All political parties understand the urgency and must work together as "the question is how to secure stable financing for a sustainable social security system."
Noda in September became Japan's sixth leader in five years, tasked with reviving an economy burdened by the world's largest debt and recovering from last March's earthquake and nuclear disaster. His popularity has plunged amid resistance to his tax plan from within his Democratic Party of Japan as well as opposition lawmakers who are calling for new elections.
"It's not impossible to reach a deal, just very difficult," said Jeff Kingston, a professor of Japanese politics at Temple University's Tokyo campus. "Noda has to do something to improve the DPJ's prospects."
The world's third-largest economy is showing signs of rebounding from a contraction last quarter. Reports last week showed industrial production and retail sales exceeded analysts' forecasts in January.
Japanese exports may get a lift from the yen's 7.9 per cent decline since marking a postwar high in October.
The currency in February had its steepest drop in two years after the Bank of Japan set an inflation goal of one per cent and added 10 trillion yen ($124 billion) to the economy.
Failure to reach a compromise on the sales tax threatens to push up bond yields, eroding the government's ability to finance its debt burden with the world's second-lowest borrowing costs. The yield on Japan's 10-year bond rose one basis point on March 2 to 0.985 per cent, the highest since February 10. The yen fell to a nine-month low of 81.81 per dollar.
Sadakazu Tanigaki, head of the main opposition Liberal Democratic Party, said on NHK Television March 2 that "it would be best" for Noda to seek a new mandate before submitting his tax legislation. He denied media reports that he and Noda met on February 25 to discuss the situation.
Given that it was the LDP that floated raising the consumption tax when it was in power, the prime minister's persistence has "got them in sort of an awkward position," Temple's Kingston said.
Noda, 54, used yesterday's press briefing to cite progress in rebuilding from the March 11 record earthquake and tsunami that devastated Japan's northeast, leaving almost 20,000 dead or missing and causing meltdowns at three reactors of Tokyo Electric Power Co's Fukushima power plant.
"Infrastructure and the economy in the disaster areas are steadily recovering and supply chains for manufacturing have recovered completely," Noda said. "Mining and manufacturing output has returned to above pre-disaster levels."
Only two of Japan's 54 nuclear power reactors are operating as the facilities undergo stress tests to ensure their safety, raising the prospect of power shortages during Japan's summer. Noda declined to say when or whether any of the plants will be restarted.
"In the end, we at the political level have to judge whether we have the understanding of the public," he said. "If we feel the need to ask for understanding in restarting, we will of course do our best."
Forty per cent of voters oppose Noda's tax plan, compared with 46 per cent who support it, according to an Asahi newspaper poll published February 14. Noda's approval rating fell to 27 per cent from 29 per cent the previous month. The paper provided no margin of error for its survey of 1,741 people on February 11-12.
Former DPJ leader Ichiro Ozawa, who is on trial for violating campaign financing laws, reiterated his opposition to Noda's tax plan yesterday on TV Tokyo. Nine lawmakers left the ruling party after it approved the proposal to raise the consumption tax to eight per cent in April 2014 and 10 per cent in October 2015.
Noda entered office as the DPJ's third premier in two years, saying the party had let voters down and was "standing on a cliff." A first-generation politician whose grandparents were farmers, Noda is the least prosperous premier since the government in 1989 began disclosing assets of cabinet members.
He is the first prime minister to graduate from the Matsushita Institute of Government and Management, established by the founder of what is now Panasonic Corp to mold Japanese leaders through policy study, factory work and Zen meditation.
Noda yesterday said that while he would like to attend a planned summit on nuclear proliferation at the end of March in Seoul, his attendance depends on whether parliament has passed the budget for the fiscal year beginning April 1.
