IMF chief:Japan should prioritise reducing debt

IMF chief Christine Lagarde on Saturday said Japan should make reducing its mammoth public debt a priority, while adding that its recent unilateral currency intervention was "in the spirit" of the G7. Japan's "priorities going forward are the swift implementation of reconstruction spending, and the adoption of a strong medium-term plan to reduce public debt," the International Monetary Fund managing director said. In Tokyo, Lagarde met Japanese Finance Minister Jun Azumi, Bank of Japan Governor Masaaki Shirakawa and financial services minister Shozaburo Jimi, before leaving for the Asia Pacific Economic Cooperation forum in Hawaii. At more than 200 percent of GDP, Japan's debt is the world's highest after years of pump-priming measures by governments trying in vain to arrest the economy's long decline. Much of government spending is swallowed up by a social security system catering to a rapidly ageing population, while entrenched deflation and the feeble economy have made it hard for lawmakers to curb borrowing. The former French finance minister warned that if the eurozone's debt crisis worsens further, Asia will feel the effect through trade and financial impacts. The situation has sent shockwaves through global markets and seen investment flowing into the Japanese yen, regarded as a safe haven in times of volatility, pushing it to post-World War II highs against the dollar and recent 10-year highs versus the euro. Tokyo has faced domestic pressure to act as the strong unit makes domestically produced goods less competitive and erodes exporters' repatriated profits, prompting fears of job losses if more firms shift production overseas as the nation seeks to recover from the March 11 earthquake and tsunami. Japan in October launched its fourth yen-selling intervention in just over a a year to weaken the unit. The unilateral move raised eyebrows as it demonstrated the absence of a coordinated currency policy between the Group of 20 nations of the world's largest economies. However, Lagarde said the intervention was "in the spirit" of G7 efforts against volatility. "Concerted action is the most efficient way of intervening," she said. But she added: "The Japanese intervention was done with a view to avoiding disorder and excessive volatility on the markets and that is very much in the spirit of communiques and statements by the G7 on such matters."