(For more stories on Japan's Aug 30 election click
* 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 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.
"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
"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.
"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
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
"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)