Japan government wants rate cut

More Japanese businesses are being forced to close

Japan's finance minister called on the central bank to cut interest rates as yet more gloomy news emerged for the Japanese economy.

"I'm not saying the Bank of Japan should do this or that, but I want them to do something to stop the slide in prices. I think monetary easing is necessary," said Masajuro Shiokawa.

The government is hoping the bank will inject more money into the financial system to boost prices, which have been falling - though some economists are sceptical this would work.

The call came as a government survey showed business confidence had slumped to the worst levels on record.

Poor expectations

The Cabinet Office's monthly "economic watchers" survey of grassroots workers such as taxi drivers and shop assistants, showed the key diffusion index (DI) in June fell for the first time in four months, to 38.2 - the worst since the survey began in January 2000.

I think monetary easing is necessary

Finance minister Masajuro Shiokawa

The survey measures the views of grassroots workers on how the economy is doing compared with the past three months.

The figure was for the 11th consecutive month below the key level of 50, which denotes the dividing line between boom and bust.

Figures released on Wednesday showed Japan's current account surplus for May took a 46% dive compared with May 2000. The current account is the balance of trade in both goods and services.

BoJ to wait and see

Economists expect the Bank of Japan (BoJ) will leave rates unchanged, saying its board may have been encouraged by the recent Tankan survey of business confidence, which was not as bad as had been feared.

"I hear BoJ officials were very relieved after seeing the Tankan survey," said Kazutaka Kirishima, senior economist at Sumitomo Life Research Institute.

Grassroots service workers are gloomy about prospects

Compiled using 9,000 companies, the Tankan is considered the best gauge of business confidence in Japan. Figures released on 2 July showed it at its lowest level for a year - down to minus 16 from minus five.

But many economists had been bracing themselves for a steeper drop and some were encouraged that large non-manufacturers' confidence held steady at minus 13.

Recession fears

Last month, figures showing a contraction in Japan's economy for the first three months of this year raised fears that the world's second biggest economy was on the brink of another recession.

Mr Shiokawa is not the first minister to appeal to the BoJ to cut rates. Economics minister Heizo Takenaka made the same plea before the bank's June meeting without result.

The BoJ last cut interest rates in March to almost zero - 0.15%.

With this in mind, economists doubt that further rate cuts would have much impact.

'No options left'

"The BoJ has no options left" on monetary policy, according to Carl Weinberg of High Frequency Economics in New York.

"The only thing that can be done to keep this boat afloat is to let the yen cheapen", he said.

Government representatives are allowed to attend the BoJ's policy board meetings and can make formal proposals to block any policy decision, but they cannot vote.

The campaign for the 29 July election to the upper house of parliament began officially on Thursday with candidacy registration for the 121 seats.

The vote is being seen as a test of support for Prime Minister Junichiro Koizumi's pledge to cure the economy with reforms which could mean rising bankruptcies and job losses.