WRAPUP 3-DPJ's Okada: Japan export-led growth has limits

Mon Aug 10, 2009 8:58am EDT

(For more stories on Japan's Aug 30 election click [ID:nPOLJP])

* Japan opposition: export-led growth model reaching limits

* Shouldn't intervene on forex if moves match fundamentals

* China military spending a concern, transparency sought

* New survey shows opposition keeps lead before poll (Adds opinion poll in 6th paragraph)

By Linda Sieg and Hideyuki Sano

TOKYO, Aug 10 (Reuters) - Japan's export-led growth is reaching its limits and Tokyo should not intervene in markets to weaken the yen as long as currency moves match fundamentals, the No.2 executive in the main opposition party said on Monday.

Surveys show the decade-old Democratic Party of Japan has its best ever chance of ousting the Liberal Democratic Party (LDP) in an Aug. 30 election, ending more than half a century of almost unbroken rule by the business-friendly party. [ID:nT44020]

"What to do with currencies should be left to a new government," Katsuya Okada, now the Democrats' secretary general and tipped by some as a possible finance minister in its cabinet, said in an interview at a Thomson Reuters Newsmaker event.

"But I think trying to move currency rates artificially when they are in line with economic fundamentals could be undesirable in the long run," Okada said.

Many analysts expect the Democrats to avoid upsetting currency markets despite past rhetoric favouring a stronger yen. Japan intervened heavily in markets earlier in the decade to stop a rising yen from harming exports but has stayed out of markets for more than five years.

An opinion poll released on Monday showed the Democrats had widened their lead over the struggling LDP. Just over 34 percent of voters surveyed by Kyodo news agency on the weekend said they would vote for the main opposition party, while 13.3 percent chose the LDP. Kyodo said 38 percent were undecided.

To stimulate consumption at home, the Democrats have pledged to put more money in the hands of consumers by providing child allowances, eliminating highway tolls and making fuel cheaper. That marks a shift away from the long-ruling LDP's emphasis on steps to help companies. [ID:nT356653]

"Growth that relies on exports to the United States, in particular, clearly has its limits as the U.S. overconsumption is being corrected," Okada said. "For domestic demand-led growth, consumption has to be at the centre."

FISCAL REFORM TARGET

Big business has complained that an ambitious Democrat target to cut greenhouse gas emissions by 25 percent below 1990 levels by 2020 and by more than 60 percent by 2050 could hurt the economy, while a proposed ban on temporary workers in factories could force firms to shift production overseas.

But Okada said steps to tackle global warming would create new business opportunities, while on the labour front the party wants only to redress excessive deregulation and is not considering banning all contract employment in manufacturing.

The Democrats' spending plans have raised concerns that they will further inflate Japan's huge public debt, which at nearly 170 percent of GDP is the highest among advanced nations.

Okada told the Thomson Reuters Newsmaker event that the party wanted to set a target for fixing the country's tattered finances when it compiles the budget for the fiscal year from April 1, 2010, if the economy stabilises by then.

"I do think that if the economy stabilises to a certain level, then we want to set a new target by the time we form a budget for the next fiscal year, but there are many uncertain factors as to whether the economy will recover by this December to such a stable situation," he said. [ID:nT161768]

Okada said that he could not rule out the need for more stimulus if the economy suffered a double-dip, adding: "I think one possible option may be to bring forward various policies we are thinking of conducting starting next fiscal year."

One economist attending the event said the Democrats should more clearly outline their most urgent priorities.

"Like the United States, the first 100 days will be crucial to judge their ability. They should have a stronger sense of crisis and tension," said Susumu Kato, chief economist at Calyon Capital Markets Japan.

On security matters, Okada said China's years of double-digit rises in its declared defence spending were a concern, and echoed calls by the LDP government for Beijing to be clearer about the content and purpose of its military buildup.

"What's important is that it improves transparency," Okada said in the interview.

"Our economic interdependency is growing, so there is no option for us to be in a military conflict. If that is so then we should not be in an arms race, but rather aim to reduce arms in the future," he said

The Democrats have pledged to seek warmer ties with Asian neighbours China and South Korea, often marred by bitter memories of Japan's wartime aggression, while adopting a diplomatic stance less subservient to Washington.

That has sparked concerns about friction in the U.S.-Japan alliance, under which Tokyo has followed Washington's lead in return for protection under its nuclear umbrella.

But Okada said the two allies should first strengthen trust and then prioritise what issues should be thrashed out.

"What is important is for President Obama and Prime Minister Hatoyama, if there is a government change, to first build a relationship with firm trust," Okada said in public remarks at the Thomson Reuters event. (Additional reporting by Yoko Nishikawa, Yuko Yoshikawa, Yoko Kubota, Masayuki Kitano, Chisa Fujioka and David Dolan)

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