Japan's Abe: fully prepared to restart talks with China

LONDON (REUTERS) - Japan's Prime Minister Shinzo Abe sought on Wednesday to repair some of the damage a row over disputed islands has done to its relationship with China, and said his country needed to prove his stimulus drive would not end in a debt crisis.

Tensions between Japan and China over a group of islands in the East China Sea have died down in recent months as both countries appear to have moderated their sabre rattling of a possible military conflict.

Speaking at a City of London event, Mr Abe held out the offer to restart talks with Beijing. "What is important is to continue dialogue with China even if there may be some event once in a while," Mr Abe said.

"Backed up by force there seems to be some provocative action triggered by China... But the door to dialogue is open, and with President Xi Jinping I am fully prepared to resume the dialogue."

In his speech, Mr Abe touched on the concerns his US$1.4 trillion (S$1.8 trillion) "Abenomics" stimulus programme were creating about Japan's debt level, which is already one of the highest in the world.

Japanese government bond yields have started to rise in recent weeks as markets have begun to question the long-term impact of the plan and if the trend continues it could be a serious blow for Abe.

"It is imperative we undergird our national credibility," he said. "We must indicate to the world that Japan will maintain robust fiscal discipline even as we set the economy firmly on track to sustained growth."

He also reiterated that if his party gained a firmer grip on power in elections next month he would push through three years of "intense" reforms designed to boost growth.

He added it planned to raise consumption tax in the country from 5 to 8 per cent next year and to 10 percent the year after.