UPDATE 2-Japan vows to stick to JGB issuance, spending caps

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

* Finmin says to give outline of budget rules on Tuesday

* Aiming to finalise 2011/12 budget guidelines by end of July

* To cap debt issuance at Y44.3 trln, spending at Y71 trln
(Adds chief cabinet spokesman quotes)

By Tetsushi Kajimoto

TOKYO, July 16 (BestGrowthStock) – Japan’s finance minister vowed on
Friday to retain a goal of capping new government bond issuance
and spending for the year from next April when Tokyo sets budget
rules this month, amid concerns about its huge public debt.

Finance Minister Yoshihiko Noda made the pledge as the ruling
party’s loss in an upper house election jeopardises efforts to
fix tattered finances, prompting warnings from credit ratings
agencies of possible downgrades. [ID:nTOE66C03L]

He said he hopes to present an outline on Tuesday of fiscal
2011/12 budget guidelines, which he said will be finalised by the
end of July.

Japan will keep new debt issuance from exceeding the current
year’s level of 44.3 trillion yen ($507.2 billion) while capping
general-account spending excluding debt servicing costs at around
71 trillion yen in the next fiscal year to rein in bulging debt,
Noda said.

“These particular frameworks have been decided by the
cabinet, so we’ll adhere to them while mapping out budget
guidelines,” Noda told a news conference after a cabinet meeting.

Chief Cabinet Secretary Yoshito Sengoku also told reporters
on Friday that the 44.3 trillion yen bond issuance cap will be
included in next fiscal year’s budget guidelines.

The spending cap is part of a fiscal framework Japan’s
government agreed on last month to show investors it will take
steps to improve public finances after Europe’s sovereign debt
crisis pummelled financial markets.

Japan’s public debt — nearly twice the size of the $5
trillion economy — has long been financed domestically from the
country’s massive pool of savings that mostly sits in the banking
system and is recycled into JGBs.

But fears are growing that the ageing population will start
drawing on that pool of savings, forcing Japan to rely on foreign
investors to fund its debt and potentially creating market
instability.

Government ministries usually submit their spending requests
based on budget guidelines by the end of August, and a draft
annual budget is compiled by the end of the year.
($1=87.33 Yen)
(Editing by Michael Watson)

UPDATE 2-Japan vows to stick to JGB issuance, spending caps