Japan Finance Chief May Consider No-Interest Bonds

By Keiko Ujikane and Matthew Benjamin

Feb. 18 (Bloomberg) -- Japan may consider issuing bonds aimed at encouraging households to save less and help fund spending in an economy heading for its worst postwar recession, newly appointed Finance Minister Kaoru Yosano said yesterday.

Lawmakers from Japan’s ruling Liberal Democratic Party last week proposed issuing bonds that pay no interest in return for a reduction in future inheritance taxes.

“It is worth considering no-interest-bearing bonds,” Yosano said at a press conference in Tokyo after taking over the post from Shoichi Nakagawa, who resigned yesterday. The idea “requires a considerable study,” he said.

Japan’s households have around 1400 trillion yen ($15.2 trillion) in financial assets, half in savings and cash. Some lawmakers are seeking to unlock those savings and raise money to fund stimulus programs to spur the economy after gross domestic product fell at an annual 12.7 percent pace last quarter, the fastest since 1974.

Yosano dismissed another LDP proposal for the government to print money as a “a futile idea.”

Nakagawa resigned amid accusations he was drunk at a Group of Seven press conference. Since returning from the conference in Rome, Nakagawa, Japan’s fourth finance minister in two years, has said a combination of medications and jet lag caused him to slur his words and nod off at the Feb. 14 press briefing.

Blow to Aso Government

The incident dealt a fresh blow to the government of Prime Minister Taro Aso, whose popularity has plunged and whose coalition government is beginning to fracture. It may also weaken Aso’s ability to take measures to bolster Japan’s economy, which is headed for its deepest recession since World War II.

“I would not be surprised if this folly signals the death- knell” for the LDP, said Kirby Daley, senior strategist and head of capital introductions at Newedge Group in Hong Kong.

Nakagawa’s departure comes as companies from Toyota Motor Corp. to Sony Corp. fire thousands of workers and the economy deteriorates.

Yosano will now hold three jobs: finance minister, head of the financial-services authority and his former post as economic and fiscal policy minister.

“It’s important to pursue international corporation” to confront the global financial and economic crisis, Yosano said.

The new finance chief also said the biggest challenge for a financial services minister is to bolster funding for Japanese companies, which is “getting severe” after a slump in exports slowed orders to both smaller and larger companies.

The nation’s banks are in a relatively healthy condition compared with those of other nations, he said.

Yosano, 70, was runner-up to Aso in the contest to head the LDP after Yasuo Fukuda resigned as prime minister in September. He said this week that Japan faces the worst economic crisis in postwar history.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net