Japan's Aso vows economy drive, faults US inaction

Taro Aso, the front-runner to be Japan's next prime minister, vowed Friday that the economy would be his top priority and charged that US inaction may have caused the global financial meltdown.

Aso, an outspoken former foreign minister, champions government involvement in the world's second largest economy, fuelling criticism by his rivals that he would bloat Japan's already ballooning public debt.

He said that a supplementary budget -- aimed at cushioning Japanese from the impact of the souring economy -- would be his first priority if he wins Monday's vote by the ruling Liberal Democratic Party.

"As it's called an emergency item, this requires a sense of urgency," he told a debate with his rivals. "It's the first priority."

Japan's economy is teetering on recession after a sharp drop in growth in the second quarter as commodity prices rise and a global slowdown hits Japanese exports.

But Aso said Japan's "sound management" had spared it the worst effects of the global financial crisis, with Japanese banks seen as comparatively little exposed to the high-risk subprime loans that contaminated Wall Street.

Lehman Brothers, a US investment titan with a 150-year history, went belly up on Monday under a mountain of liabilities.

"Perhaps the (US) government lacked enthusiasm to cope with Lehman. As a result it had a big impact," Aso told the debate at the Foreign Correspondents' Club of Japan.

"Perhaps it's a system crisis and if that's the case the whole world should come together to address it," Aso said.

Aso regretted that the Japanese government was hesitant to bail out private banks after Japan's so-called "bubble economy" collapsed in the early 1990s.

"The media questioned whether government money should go to individual companies," Aso said. "The government at the time didn't act promptly and as a result it became more costly."

Aso spoke as leaders of the US Treasury Department, Federal Reserve and Congress met in Washington to draft a rescue plan for the ailing banks, which reportedly could involve a taxpayer-backed bailout.

Aso's rivals include Kaoru Yosano, the minister for economic and fiscal policy, who has accused the front-runner of risking Japan's financial health through lavish publish spending.

Yuriko Koike, a former defence minister vying to be Japan's first female leader, hailed the free-market efforts of former prime minister Junichiro Koizumi, who forced banks to dump bad loans during his 2001-2006 tenure.

"We believe that the historical lesson of Japan should be communicated to the US," Koike said.

Taking a cue from Koizumi, Koike vowed to "destroy Kasumigaseki" -- the Tokyo district that is home to powerful bureaucrats.

Koizumi was the rare Japanese premier to enjoy popularity throughout his term. He styled himself as the enemy of the old guard in the Liberal Democratic Party, which has been in power for all but 10 months since 1955.

The former leader has thrown his weight behind Koike, even though media surveys say Aso has already locked up the race.

Incumbent Prime Minister Yasuo Fukuda quit abruptly this month after months of political trouble following the introduction of a hugely unpopular medical plan that raises costs for elderly people.

A Jiji Press poll out Friday put the Fukuda government's approval rating at a mere 15.6 percent, down eight points in the past month.

The new prime minister is widely expected to call a new general election quickly to take advantage of initial popularity and contain gains by the opposition, which won control of one house of parliament last year.

But Aso denied media reports that the election was set for October 26.