Japan's new prime minister, Taro Aso, and his fellow cabinet ministers vowed on Wednesday to prioritise revising the nation's flagging economy for now, but said Tokyo had not abandoned plans to fix its fiscal woes. The world's No.2 economy is heading towards recession as high energy and food prices bite, prompting Aso to advocate spending and tax cuts. Aso says Japan's economic problems require three years to heal and his willingness to put off the government's goal of balancing its budget by fiscal 2011/12 has has alarmed fiscal reformers in his party, as well as some economists. “It is not wrong to keep the goal unchanged, but we cannot ignore the fact that economic conditions have changed drastically since then,” Aso told a news conference after announcing his cabinet line up on Wednesday. Japan's economy suffered its biggest quarterly contraction in seven years in the second quarter and, with stormclouds building over the economy of key customer the United States, Japan is skirting recession. For the immediate future, the government has to find a way to finance its plan to raise its share of contributions to the state pension program from the next fiscal year, a promise Aso said he would stick with. Kaoru Yosano, a fiscal conservative who finished a distance second to Aso in Japan's leadership race but retained the job of economics minister, said the new prime minister had instructed him to prepare a medium-term plan to cope with growing social welfare costs through tax reforms. “But for the time being, he told me to focus on the economy that the people have been concerned about,” Yosano added. “I will be working under the leadership of the prime minister, but I would like to provide my frank opinions in line with my conscience.” Some economists said keeping Yosano in the cabinet meant Japan's efforts to rein in the mountain of public debt, already 1-1?2 times GDP, would be maintained. But others noted that Yosano did not have the prerogative over fiscal policy. The economics minister oversees Japan's economic conditions as well as policy and acts as a spokesperson for the government's top economic advisory panel headed by the prime minister, but is not the main finance minister in charge of fiscal and tax policy. That is in the hands of the new finance minister, Shoichi Nakagawa, who has been an outspoken proponent of tax cuts and increased spending in troubled times. Nakagawa said on Wednesday he would not rule out additional economic measures if needed, but added that issuing additional bonds to cover the deficit should be avoided as much as possible. “I think the need to carry out fiscal reform is a consensus among the public. But we should achieve fiscal reform by improving the economy and lifting livelihoods of the Japanese people. I don't think two ideas are contradictory,” he said. As finance minister, Nakagawa will be in charge of Japan's currency policy and will be in contact with Group of Seven counterparts at a time of global market turmoil.
