A strong yen could "hollow out" Japan's industrial heart and undermine recovery from the March quake-tsunami disaster, the new prime minister warned in his first major policy speech.
Addressing a special session of the Diet in Tokyo on Tuesday, Yoshihiko Noda also pledged to reduce Japan's dependence on nuclear power in the wake of the ongoing atomic crisis that has forced thousands of people from their homes.
he premier, sworn in less than two weeks ago, promised to deliver a strategy to revive Japan's economy by the end of the year and boost recovery efforts following the triple disaster in March.
In a broad-brush speech that was heavy on intention but short on specifics, Noda pledged a full re-think on Japan's energy policy in the wake of the world's worst atomic accident in a quarter of a century.
He pledged a new energy strategy "by summer" 2012, and said Japan must "aim to minimise our dependency on nuclear energy as much as possible in the medium-to-long term".
However, he stopped short of ruling out future use of nuclear power -- something his unpopular predecessor Naoto Kan had pushed for -- and said reactors that are currently offline for maintenance would be restarted.
He also warned the government's credibility was at stake in efforts to restore Japan's fiscal health.
Noda said the rocketing value of the currency could break domestic industries, wipe out jobs and hamper efforts to rebuild communities destroyed in March.
"The yen's historic rise, coupled with catch-ups by emerging nations, has caused a crisis of unprecedented industrial hollowing-out," Noda told lawmakers.
"We hear screams from exporters and from the small and mid-sized companies that have led our country's industries. If things carry on like this, domestic industries could go downhill and jobs could be lost.
"If that happens, it would be almost impossible to break out of deflation and reconstruct areas hit by the disaster."
The value of the yen was high even before the quake-tsunami that left 20,000 people dead or missing, and has continued to rise since, last month hitting a post-World War II high as financial uncertainty in Europe and the United States has sent global traders scurrying into the safe-haven currency.
Despite three interventions in the markets in the past year, two of which were unilateral, the yen has remained strong, squeezing exporters.
In Tuesday trade it stood at 77.09 yen to the dollar.
"We need to take every possible policy measure in cooperation with the Bank of Japan," Noda said, noting that an upcoming third supplementary budget would include emergency economic measures.
As well as devastating hundreds of kilometres (miles) of coastline, the March 11 tsunami knocked out cooling systems at the Fukushima Daiichi nuclear plant, sparking meltdowns and sending radiation into the air, sea and food chain.
But public confidence in the technology has been badly knocked by the disaster, which has seen tens of thousands of people evacuated from their homes around the leaking plant.
"I will draw up a new (energy) strategy and plans by next summer," Noda said, adding he wanted Japan to lead the world in energy-saving technology and the use of renewable energy.
Noda, the sixth new prime minister in five years and one whose administration suffered an early blow with the gaffe-induced resignation of his industry minister at the weekend, said Japanese politics needed to change.
He told lawmakers the country's political classes were facing ridicule from overseas commentators for always seeking to put off decisions, adding that Japan's burgeoning debt, which stands at around 200 percent of GDP, needed to be addressed now, not in the future.
"Our generation should unite and share the burdens and costs of reconstruction without passing them on to future generations."
He said he would study "temporary tax measures" after striving to cut spending, sell assets and review labour costs in Japan's large public sector.
"Now that confidence in the country is called into question, we cannot continue fiscal management in which debt causes more debt."