Abe-Kuroda honeymoon soured by fiscal friction
By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) - A rift is emerging between Prime Minister Shinzo Abe and his hand-picked central bank boss on how to fix Japan's tattered finances, which could blunt the impact of the "Abenomics" stimulus policies they have worked together to prosecute.
Two years into Bank of Japan Governor Haruhiko Kuroda's tenure, the cracks are becoming hard to conceal and could affect the timing of any further monetary easing and an eventual end to the massive money-printing program he set in train.
Their differences over fiscal policy needed to cut Japan's staggering public debt, which at 230 percent of GDP is twice the U.S. figure and about 50 points higher than perilous Greece, have so far been masked by their shared determination to end deflation.
The perception of common purpose is critical to giving businesses, markets and consumers the confidence to change behavior and ensure that the stimulus measures and inflation targets are effective.
But the mask began to slip last year when Abe decided to delay a sales tax hike, making Japan's primary fiscal goal harder to achieve.
"The honeymoon days are over," said Izuru Kato, chief economist at Totan Research. "Kuroda must be frustrated over a lack of progress in structural reform and fiscal consolidation."
A former finance ministry bureaucrat, Kuroda feels Japan cannot afford to delay tax hikes and spending cuts given its dire fiscal state, while Abe prefers to focus more on boosting growth to raise tax revenues.
Last month a key policy panel run by Abe's right-hand man, Economics Minister Akira Amari, began debating proposals that could water down Japan's fiscal target of returning to a primary budget surplus, excluding debt servicing costs and income from bond sales, in fiscal 2020. Continued...