Japan could 'collapse' under crippling debt, says PM

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Naoto Kan, speaking in his first address to Parliament after taking office on Tuesday, said Japan could not continue to let government debt swell while state finances are under pressure from an aging and declining population.

"It is difficult to sustain a policy that relies too heavily on issuing debt. As we have seen with the financial confusion in the European community stemming from Greece, our finances could collapse if trust in national bonds is lost and growing national debt is left alone," he said.

Japan, the world's second largest economy, has the largest public debt among industrialised nations at 218.6% of its GDP last year, according to the International Monetary Fund.

After amassing a vast public debt and overspending to the tune of 13.6% of gross domestic product in 2009, Greece was saved from defaulting on its loans by the first instalment of a 110 billion (£94.5 billion) rescue package from the International Monetary Fund and the 15 other eurozone countries.

Kan promised his government would work closely with the Bank of Japan to avoid an increase in deflation and would focus on developing a "strong and comprehensive" policy. He will also consider raising taxes, an issue he said previous governments had been too timid to face.

He said he was targeting economic growth of more than 2% by 2020.

Kan is riding high on public support after his predecessor Yukio Hatoyama quit last week and is considering a general election on July 11.