UPDATE 1-Japan Kan sets cap on next yr’s new bond issuance

(For more stories on the Japanese economy, click [ID:nECONJP])

* Finmin Kan: New bond issuance shouldn’t top 44.3 trln yen

* Kan: Japan needs sustainable long-term fiscal policy

* Sengoku: Japan needs to draw lessons from Greece
(Adds comments, details)

By Stanley White and Leika Kihara

TOKYO, May 11 (BestGrowthStock) – Japan will try to ensure that next
fiscal year’s new bond issuance does not exceed the amount
earmarked for this year, the finance minister said, as the Greek
debt crisis adds pressure on Tokyo to rein in its huge public
deficit.

The government may consider setting a cap on some areas of
spending in crafting the state budget for the year beginning in
April 2011, so that new bond issuance does not exceed this year’s
44.3 trillion yen ($474.7 billion), Finance Minister Naoto Kan
said.

“As the situation in Greece and the euro zone show, when
markets lose confidence in a country, it’s not just about fiscal
conditions becoming severe. It poses huge damage to people’s
livelihoods,” Kan, who is also deputy prime minister, told a news
conference on Tuesday.

“Markets are becoming sensitive to sovereign risk so in order
to prevent this from happening we need to make as much effort as
possible so that issuance does not exceed 44.3 trillion yen.”

Concerns about debt burdens in European countries have
rattled financial markets globally, and European Union finance
ministers, central bankers and the International Monetary Fund
agreed an emergency rescue package worth about $1 trillion in
marathon talks at the weekend. [ID:nN09270819] [FRX/]

Financial markets had started to punish other euro zone debt
of members with bloated budgets such as Portugal, Spain and
Ireland.

Japan has been immune to this kind of market scare despite
the balance of its public debt being the worst among
industrialised nations, mainly because of the country’s huge
private savings and the fact government debt is held mostly by
domestic investors.

But Kan warned against complacency, saying that with markets
becoming increasingly sensitive to sovereign risk, Japan needed
to come up with a sustainable long-term fiscal policy.

National Strategy Minister Yoshito Sengoku, in charge of
crafting a long-term strategy for the state budget, also said
financial markets may start reacting to Japan’s high outstanding
debt, depending on the current account balance.

“Japan needs to draw a lesson from Greece’s problems and to
take steps on fiscal discipline with a stronger sense of crisis
than before,” Sengoku told a news conference on Tuesday.

Kan and Sengoku have been signalling the need for Japan to
consider tax hikes to fix the country’s tattered finances. But
they have drawn little support from others in the government.

Many in the ruling Democratic Party are opposed to any talk
of a tax hike for fear of scaring away voters ahead of an upper
house election expected in July.
Stock Market Basics

(Additional reporting by Rie Ishiguro; Editing by Charlotte
Cooper)

UPDATE 1-Japan Kan sets cap on next yr’s new bond issuance