Japan economy faces same risks as Europe: PM

Japan faces the same risks that plague financially-embattled European states, Prime Minister Yoshihiko Noda warned Saturday, days after he pushed through a divisive tax bill to chip away at the country's mountainous debt.

Noda's statement comes a day after leaders from the 17 countries sharing the euro struck a deal to direct emergency measures at Italy and Spain and boost the ailing economy.

"Countries like Italy and Spain have made desperate efforts" towards financial recovery, Noda said.

"But once markets start looking into a country's fiscal condition and considers its government has no ability to enforce disciplined management, what would happen? We need to think about it very hard." he told a forum in Tokyo.

The European accord paves the way for the eurozone's 500-billion-euro ($630 billion) bailout fund to recapitalise ailing banks directly, without passing through national budgets and adding to struggling countries' debt mountains.

The eurozone bailout funds would be used to stabilise markets by buying countries' bonds to drive down high borrowing costs that in recent weeks have crippled Spain and Italy.

Japan also has accumulated a huge public debt, which at more than double the GDP, is proportionately the world's largest, and Noda has warned that the future of the world's third-largest economy rests on tackling it.

Noda, who has staked his premiership on a tax rise widely believed to be a sensible way for Japan to begin plugging its fiscal hole, on Tuesday passed legislation to double consumption tax in the powerful lower chamber.

"Japan is now hanging on the edge of whether it can grab the chance of being a role model in the world by overcoming this challenge or becoming a Far Eastern state without vigour, where many old people live," he said.

Opponents of the planned tax rise from the current five percent to 10 percent by 2015, including a sizable rebellion in his own Democratic Party of Japan (DPJ), say any increase in household bills would derail Japan's uncertain economic recovery.

The bill will now go to the upper house where it is expected to pass after deals Noda reached with opposition parties to navigate a chamber his party does not control.