By Leika Kihara
TOKYO (Reuters) -Shinjiro Koizumi, launching a bid to become Japan's next prime minister, pledged on Saturday to focus on revitalising the economy by boosting wages and productivity to counter rising prices.
Koizumi, seen as a frontrunner in the ruling party's leadership race, said Japan must shift the focus of economic policy from beating deflation to one better suited to an era of inflation.
"Japan's economy is in a transition phase from deflation to inflation," Koizumi told a news
conference announcing his bid for president of the Liberal Democratic Party.
"We must have wage growth accelerate at a pace exceeding inflation, so consumption becomes a driver of growth," Koizumi said, adding that the economy would be his policy priority.
On monetary policy, Koizumi said he hoped the Bank of Japan would work in lock step with the government to achieve stable prices and solid economic growth.
Koizumi and veteran fiscal dove Sanae Takaichi are seen as the top contenders in the October 4 party race after Prime Minister Shigeru Ishiba's decision this month to step down.
The next LDP leader is likely to become prime minister as the party is by far the largest in the lower house of parliament, although the LDP lost its majorities in both houses under Ishiba, so the path is not guaranteed.
Koizumi said if he were to become prime minister, his government would immediately compile a package of measures to cushion the economic blow from rising prices, and submit a supplementary budget to an extraordinary parliament session.
"While being mindful of the need for fiscal discipline, we can use increased tax revenues from inflation to fund policies for achieving economic growth," he said.
The LDP race has drawn strong attention from market players and led to a rise in super-long government bond yields on the view the next leader could boost fiscal spending.
Investors have also focused on the candidates' view on monetary policy, as the BOJ eyes further hikes in still-low interest rates. Takaichi had criticised the BOJ's rate hikes in the past but made no comment on monetary policy at a news conference on Friday.
Koizumi said that if chosen as prime minister, his government would slash tax on gasoline, increase tax exemptions for households and take steps to raise average wages by 1 million yen ($6,800) by fiscal 2030, Koizumi said.
He also pledged to increase government support on corporate capital expenditure to boost Japan's manufacturing capacity. "We need to build a strong economy backed by growth in both demand and supply," Koizumi said.
($1 = 147.9400 yen)
(Reporting by Leika Kihara; Editing by William Mallard)
