Japan seen paving way for more economic steps By Yoko Kobayashi TOKYO, Jan 19 (Reuters) - Prime Minister Ryutaro Hashimoto, faced with a worsening economic climate and mounting political pressure in Japan, is carefully laying the groundwork for steps to boost the economy in the next few months, analysts say. ``We will cope flexibly with changes in economic and financial conditions...on both the tax and fiscal front,'' Hashimoto told a budget committee of the Lower House of the parliament on Monday. Japan's mass-circulation Asahi Shimbun daily said on Saturday that Deputy Cabinet Secretary Fukushiro Nukaga had promised the United States during a trip there earlier this month that Tokyo will form a large extra budget as early as April that may feature more tax cuts, steps to boost imports and increases in public works spending. ``Hashimoto's advisers, including his secretaries, decided to send Nukaga to Washington to communicate Japan's plan to implement further reflationary measures and to get Washington's cooperation on the foreign exchange front,'' said Minoru Morita, a veteran political commentator. ``I believe it will be virtually impossible to see an early recovery of the Japanese economy... on the basis of the two measures being introduced this month in parliament. I believe it was precisely because Hashimoto himself and his people were aware of this that the administration sent Mr Nukaga to Washington,'' he added. Among measures currently being debated in parliament for approval are a supplementary budget for the fiscal year ending in March featuring two trillion yen ($15.5 billion) worth of income tax rebates, and financial stability steps including the use of 30 trillion yen ($232 billion) of public funds to protect depositors and to boost financial firms' capital. Japan's economic recovery has stalled, and some say slipped into recession, after being battered by a tight fiscal regime since April. Worries over Tokyo's financial system following a series of company failures as well as regional currency turmoil have added to the sense of economic gloom. Tokyo's official line is that the measures it has announced will help the economy get back on a firm recovery track. Hashimoto's government has said it has not altered plans to cut Japan's state debt -- a long-term goal -- and that this is still compatible with the short-term aim of spurring an economic recovery. But U.S. officials -- not to mention market participants, business leaders, opposition parties, and private economists -- want to see more action, such as deeper tax cuts. ``These (existing) measures will help slow down the speed and the depth of the economic downturn, but will not be enough to reverse the direction the economy is heading,'' said Yasuyuki Komaki, an economist at NLI Research Institute. Hashimoto refuses to openly admit Japan is considering more fiscal stimulus steps as it has not even managed to get its current stimulus and financial stability steps passed in parliament due to fierce attack from opposition parties, which accuse the prime minister of economic blundering. I have received a report (on the U.S. trip) from him (Nukaga), but he did not say that he had promised such an extra budget (to the U.S.) as reported in the media, Hashimoto said. But signs of economic-boosting steps are appearing on the horizon. Yoshiro Mori, a senior official of the ruling Liberal Democratic Party (LDP), was quoted as saying earlier in the month that Japan should consider making permanent its planned one-off income tax rebate. Hashimoto shortly afterwards hinted that Tokyo may continue the income tax rebate depending on economic conditions. ($1 equals 129 yen)
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