Share prices in Tokyo and the Japanese yen have risen sharply after the Prime Minister, Ryutaro Hashimoto, announced plans for big tax cuts to invigorate the economy.

Mr Hashimoto said he did not want a worldwide depression to be sparked off by the state of Japan's economy. Indeed, dealers said foreign investors were rushing to buy yen and sell dollars after his announcement.

Hashimoto: did not want to be blamed for world depression

The key stock market barometer, the 225-share Nikkei average, rose more than 5% before finishing the morning session up 513.89 points or 3.21% at 16,499.10. Prices firmed further at the start of the afternoon session.

In Washington, President Clinton welcomed the tax cuts after he heard details in a personal phone call from Mr Hashimoto.

The Japanese Prime Minister said the cuts in income tax would amount to $15 billion, and would be included in a supplementary budget for the year to March 1998.

Mr Hashimoto said the tax cuts would come on top of a ten-trillion yen bond issue agreed Tuesday by the ruling Liberal Democratic Party to lend stability to the battered financial system. The LDP plan has yet to gain cabinet approval.

The LDP further proposed a three-percentage-point cut in the basic corporate tax rate to 34.5%, as well as revisions in securities and land taxes, worth a total 850 billion yen.

BBC correspondents say Mr Hashimoto has held out against tax cuts until now, and the reversal of policy may be seen as a humiliation by his political opponents.
 

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