Chikara Sakaguchi, minister of health, labor and welfare, said Friday that his ministry will conditionally agree to lift a freeze that has kept pension payments from matching price declines during the past three years.
But Sakaguchi said price falls of 1.7 percent seen since the freeze was put in place in fiscal 2000 will not necessarily be reflected in pension payment reductions.
The welfare ministry has been pressed by the Finance Ministry and the Council on Economic and Fiscal Policy, chaired by Prime Minister Junichiro Koizumi, to accept a proposal to lift the freeze in fiscal 2003 and cut pension payments, citing a shortfall in social security budgets.
But the ministry is opposed to the idea on the grounds that a reduction in pensions may harm the long-languishing economy.
Sakaguchi said, however, that the ministry will accept the proposal if the salaries of government employees are also cut in line with recommendations by the National Personnel Authority.
"It would not be appropriate if public servants' salaries are left unchanged and only pensions are reduced," he said.
If the proposal is fully implemented, the 1.7 percent fall in prices over the past three years would be added to this year's deflation, which the government estimates at 0.6 percent.
The government originally banned the practice of linking pension payments to price fluctuations out of fear of triggering further economic deterioration. The link was introduced in 1973 to help the elderly cope with rising prices at the time.
Ministry officials said there is still strong internal opposition to a large reduction in pension payments, which they say could dampen the economy further.