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Japan Not Immune To Europe-Style Crisis

-- Finance Minister Jun Azumi says Japan not immune to European style debt crisis

-- Says Japan must raise consumption tax to deal with own debt

-- Adds Japan ready to take firm action against speculators on yen

TOKYO -(Dow Jones)- Japanese Finance Minister Jun Azumi said Wednesday that Japan is not immune to a euro-zone style fiscal crisis and that the government is "resolved" to double the consumption tax to improve the nation's finances as government officials work to drum up support for the unpopular proposal.

"Japan is no exception," Azumi said during a speech at the Foreign Correspondents' Club of Japan, referring to the country's own high debt levels in light of the crisis in Europe.

Azumi said that although yields on Japanese government bonds are currently low, interest rates can quickly rise, emphasizing the urgency of tackling Japan's mountain of debt.

Despite Japan's high debt load, few believe the country is on the verge of a crisis given the relatively low rate of foreign holdings of the country's debt. Still, officials, including Prime Minister Yoshihiko Noda, have repeatedly made a point recently of emphasizing that the situation is unsustainable and have hinted at the possibility of eventual European-style turmoil as what could lie in store if the consumption tax is not raised to secure more revenue.

"We cannot avert our eyes from the great problem of our outstanding national debt," Azumi said, which at around 200% of gross domestic product is the highest in the industrialized world.

Azumi said the government is resolved to raise the tax to help bring the country's finances under control, but acknowledged the political difficulties in getting the legislation passed, saying it is "like climbing Mt. Everest."

"But we know that if we don't surmount this obstacle, we can't move to the next stage, so we are resolved to pass the legislation," he added.

Azumi said that given currently low interest rates on Japan's debt, the situation is stable, but things can change quickly.

"There are times when interest rates gradually increase and there are times when they increase suddenly and that can threaten the political system of a country," he said, referring to the fall of Silvio Berluconi's government in Italy last year as an example.

Noda aims to submit bills to raise the tax to 10% by 2015 to a parliamentary session set to begin next week, though the unpopular move, which has already sparked defections from his ruling Democratic Party of Japan, requires support from a hostile opposition to gain passage through Japan's parliament.

Regarding currency policy, Azumi said later during a question-and-answer session after the speech that Japan stands ready to deal firmly with potential speculative run-ups in the yen, though his comments did not appear to suggest any intervention was imminent.

"We can take decisive measures anytime against excessive, speculative moves," he said.

The dollar remains near a record low against the yen, while the euro hit an 11-year low against the Japanese currency Monday amid uncertainty over the European sovereign crisis.

Azumi also said it would be difficult for Japan to set a specific line for defending the yen as Switzerland has done with its franc given the huge supply of yen in global markets compared with the Swiss currency and the yen's role as a reserve currency.

He reiterated comments made last week that a too rapid implementation of new U.S. sanctions against Iran over its nuclear development has the potential to deal a blow to Japan's economy and banks, and urged a cautious approach.

While agreeing that it is important for Japan to cooperate with the U.S. and other countries regarding Iran, he said he wants to work with them to minimize the negative impact on the economy and banks, which could be subject to U.S. sanctions if Japan does not reduce oil imports from the Middle Eastern country.

Japanese and U.S. officials are discussing the issue in Tokyo this week.

Azumi said last week during a joint press conference with U.S. Treasury Secretary Timothy Geithner that Japan would reduce its oil imports from Iran further, though Noda said Friday that nothing was decided and that details would be worked out after consultations with the U.S.

Azumi appeared to hold firm Wednesday, however, suggesting that Japan would continue to decrease oil imports from the country.

"I told Secretary Geithner that our fundamental view is that in the future we will move in the direction of further decreasing Iranian oil imports," Azumi said of his meeting with the U.S. official.

Energy-dependant Japan imports about 10% of its oil from Iran, though Azumi said the figure is down about 40% over the past 5 years.

-By Kelly Olsen, Dow Jones Newswires; +813-6269-2790; kelly.olsen@dowjones.com

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  01-18-120515ET
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