Tokyo, Jan. 31 (Bloomberg) -- Japanese Prime Minister Junichiro Koizumi vowed to work with the central bank to end more than four years of falling prices that have stifled growth in the world's second-largest economy. ``It is necessary to use all available policy tools to revive the Japanese economy,'' Koizumi said in a prepared speech to the lower house of parliament. ``The government will work closely with the Bank of Japan to tackle deflation.'' Koizumi is trying to keep Japan from falling into a fourth recession in a decade. Japan's unemployment rate rose in December to match a record, and household spending fell to its lowest in more than two decades, reports today showed. Consumer prices in December extended a 4 1/2-year slide, another report said. Economic and Fiscal Policy Minister Heizo Takenaka, also speaking to parliament, went a step further than Koizumi, calling on the central bank to take steps ``unbound by precedent'' to fight deflation.
The speeches came as Koizumi prepared to name a replacement for Bank of Japan Governor Masaru Hayami, whose five-year term ends March 19. Government officials have repeatedly criticized the central bank for failing to do enough to help the economy. Finance Minister Masajuro Shiokawa today told parliament that he was ready to sell the yen if the currency's gains against the dollar were too rapid. His remarks contradicted Hayami's view that the central bank should ``make its own currency attractive to people within its country and overseas.''
Yen Gains
The yen's 3.3 percent gain against the dollar in the past three months threatens to undermine Japan's recovery by hurting the yen value of exporters' overseas revenues. The yen was at 119.01 yen to the dollar at 3 p.m. in Tokyo, from 118.96 late yesterday in New York, after falling as low as 119.27. Hayami, for his part, has said there's little more the central bank can do after cutting short-term interest rates almost to zero in March 2001 and tripling monthly purchases of bonds from banks in the past two years to 1.2 trillion yen ($10.2 billion.) ``It is problematic that the government is putting all the responsibility on the central bank,'' said Noriko Hama, an economist and professor at Doshisha University. ``Koizumi didn't propose anything new.'' Koizumi repeated promises to push banks to clean up more than 52.4 trillion yen in bad loans held by April 2005. Dud credits have paralyzed the banking system, contributing to a six- year decline in lending that has starved companies of the fresh credit they need to grow.
Spending
Some ministers and officials in Koizumi's ruling Liberal Democratic Party have called on the central bank to adopt an inflation target, which implies pumping cash into the economy to push up prices by a targeted amount over a certain period. Falling consumer prices have squeezed the economy by cutting corporate profits, eroding the value of real estate and creating new bad loans faster than lenders can dispose of old ones. Central bank policy makers last week decided to refrain from expanding the bank's monthly government bond purchases from 1.2 trillion yen. Takenaka also said more government spending alone wouldn't revive Japan's economy. He added that unless Japan tackles the dud loan problem and the government's growing budget deficit, a ``crisis'' could occur. ``If we pursue economic policy that only relies on fiscal expansion without structural reforms, then I can declare that Japan's economy has no future,'' Takenaka said.
Broken Vow
The upper house yesterday approved a government plan to spend an extra 3 trillion yen on public works and jobs programs in the fiscal year ending March 31. The extra spending will force Koizumi to break his pledge to cap sales of new debt at 30 trillion yen to curb Japan's national debt, the developed world's highest at nearly 140 percent of gross domestic product. Japan's economy probably shrank 0.3 percent in the fourth quarter, after expanding 0.8 percent in the third quarter, according to the median forecast in a Bloomberg Survey of 12 economists. //www.quote.bloomberg.com