Japan Aso: watching FX moves, signs economy brightening

TOKYO Wed Feb 27, 2013 11:05pm EST

TOKYO Feb 28 (Reuters) - Japanese Finance Minister Taro Aso said on Thursday that he will keep close watch on currency market moves, and that the economy was showing bright signs, including recent gains in share prices, after a slump last year.

"We will continue to monitor currency moves and make sure the economy recovers by encouraging private investment, jobs growth and an expansion in wages," Aso said in a speech to parliament.

The yen had weakened sharply since mid-November, boosting sentiment in the export-oriented economy, but its gains this week on worries about political deadlock in Italy served as a reminder that the Japanese currency is still perceived as a safe-haven currency in times of uncertainty.

At a separate event earlier, Aso told the lower house budget committee that he was cautious about adopting proposals for the Bank of Japan to be allowed to buy foreign bonds, as it could be viewed as currency intervention, which would run contrary to agreements with governments of other major economies.

Prime Minister Shinzo Abe took office in December, after his party's big election win, promising to revive the world's third-largest economy with his "Abenomics" policy mix of monetary and fiscal stimulus, and the resulting weakeness in the yen has begun to help exporters.

Aso told parliament that the economy, which entered a shallow recession last year, was beginning to show optimistic signs.

"From the middle of last year the global economy slowed, which led to weakness... and worries that the bottom would fall out of Japan's economy," he said. "However, recently, the stock market has started to recover and we've started to see some bright signs."

Aso also stressed the need for Japan to fix its finances, with public debt twice the size of its economy, and said policies would aim to achieve both fiscal reform and economic revitalisation.

"We cannot keep resorting to fiscal spending forever. It is vital to secure trust in Japan's public finances in view of its very severe fiscal situation," he added.

The government planned to draw up an ambitious growth strategy, including bold regulatory and structural reforms, by around the middle of this year, Aso said.

He reiterated Japan's pledge to halve its primary fiscal deficit by the year ending in March 2016 and realise a surplus by the year ending in March 2021. To achieve this end, Aso said the government will continue with tax and welfare reforms.

Economics Minister Akira Amari said in a separate speech to parliament that the central bank must pursue powerful monetary steps to bring the economy out of nagging deflation.

"I strongly expect the Bank of Japan to proceed with bold monetary easing to erase deflationary expectation and achieve 2 percent inflation goal as soon as possible," he said, referring to the central bank's new price target.

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