Japan's Noda warns FX, power rates may drive firms abroad

By Tetsushi Kajimoto and Yuko Yoshikawa

TOKYO (Reuters) - Japan must prevent currency rates and electricity costs from driving companies abroad after the March 11 earthquake raised concerns about the reliability of suppliers and the availability of power, Finance Minister Yoshihiko Noda said on Friday.

Noda also reaffirmed Tokyo's commitment to its goal of reaching a primary budget surplus in 2020/2021 and promised to maintain a lid on new bond borrowing to shore up market confidence in the face of looming sovereign credit downgrades.

The natural disaster and the subsequent nuclear crisis ripped apart supply networks and triggered power shortages, threatening to spur Japanese companies to speed up the gradual shift in production overseas.

"What we must bear in mind is that the biggest problems are currency and electricity rates. We must prevent these problems from causing an outflow of companies abroad," Noda said when asked how the yen's strength was affecting Japan's recovery from the March disaster.

Noda told Reuters in an interview that he was ready to act in case of sharp swings in the yen, but that such action would not be targeting any specific levels for the Japanese currency. Tokyo last stepped into the market in a rare joint intervention with its G7 partners on March 18, shortly after the yen hit an all time high of 76.25 yen to the dollar.

The current yen level is still stronger than leading exporters' expectations, threatening to squeeze their profits.

Toyota Motor Corp <7203.T> expects the dollar to average 82 yen in the current financial year ending in March 2012, against an average currency rate of 86 yen per dollar last year.

"I will take decisive steps against disorderly moves and excessive fluctuations again, although the decision would not be based on certain levels," Noda said.

He did not specify what other steps the government could take to avert an exodus of Japanese manufacturers.

Asked how the government can assure investors about its commitment to fiscal discipline, Noda pointed to Thursday's agreement between the government and ruling party lawmakers on a plan to double the sales tax to 10 percent to cover rising welfare costs.

"I won't comment on judgments by private ratings agencies, but we have met the (self-imposed) June target and I'm confident that with this plan, we can call on opposition parties to sit at the negotiating table."


The agreement effectively softens the government's initial commitment, backing off from a target date of 2015 for the sales tax hike and instead setting a more ambiguous timeframe of mid-decade, while making increases contingent on economic growth. There are also doubts whether the opposition will support the plan.

Major credit rating agencies have all warned that Tokyo risked a sovereign downgrade unless it had a credible plan and showed strong commitment to cutting its public debt, which now stands at twice the size of the $5 trillion economy.

Noda said he wanted everyone in the ruling party and the opposition to be aware of such concerns.

"As I attend international meetings, I strongly feel that other countries are closely watching to see if Japan can maintain fiscal discipline after the quake," he said.

"I want to patiently discuss with those within the ruling party as well as the opposition so as to share such a sense of crisis."

Noda said that, as a way of shoring up confidence, he will stick to the goal of halving the deficit in Japan's primary balance, which excludes debt servicing costs, by the 2015/16 fiscal year and bringing it into balance five years later.

To meet that target, Noda said he is aiming to keep new bond issuance in the next fiscal year from April 2012 below the current year's 44.3 trillion yen ($550 billion).

The government will review in the summer its mid-term fiscal plan issued last year, but an expected drop in tax revenues caused by the earthquake and reconstruction costs is likely to strain public finances.

The minister hailed the Bank of Japan's response to the March disaster, saying the central bank had done everything possible to support the economy.

But he also said the BOJ should continue to underpin the economy by maintaining its accommodative monetary policy.

Asked if he intended to run for the post of prime minister in the future, Noda said he was focusing on his current job.

"I am only trying to fulfill my duty," he said, declining to comment further.

Noda has been mentioned as a possible contender to replace Prime Minister Naoto Kan, who said last month he would hand over the reins to the younger generation in his party but without specifying the timing of his departure.

($1 = 80.530 Japanese Yen)

(Reporting by Tetsushi Kajimoto and Yuko Yoshikawa; Editing by Tomasz Janowski and Edmund Klamann)