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The BBC's Charles Scanlon
"The government later played down the remarks"
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The BBC's Mike Gregory
"An economy that's never got over the effects of a collapse in the price of property and other assets in the late 1980s"
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Thursday, 8 March, 2001, 12:47 GMT
Japanese minister warns of 'collapse'
Japan's steel works
There are fears the economy could fall into recession
Japan's finance minister Kiichi Miyazawa has warned that the country's finances could be close to a collapse.

The nation's finances are now abnormal, in a state relatively close to collapse

Kiichi Miyazawa
Japan's finance minister
In another blow for Japan's ailing economy, the minister told a parliamentary committee that "the nation's finances are now abnormal, in a state relatively close to collapse".

He warned that urgent steps, including fiscal reform to reduce the government's debt burden, needed to be taken.

"We have to create a healthy economy instead of just trying to sound positive with words," Mr Miyazawa added.

His comments drove the yen to a 19-month low against the dollar.

Attempt to downplay remarks

Later the government moved to soften the minister's stark warnings, saying that Mr Miyazawa was referring to future problems if nothing was done in 10 or 20 years.

Kiichi Miyazawa
Kiichi Miyazawa: "We have to create a healthy economy"
Analysts disputed the comments, denying that the country's finances were in dire straits.

They interpreted Mr Miyazawa's warning as a sign that the government would not embark on any more big spending packages, or bail-outs.

On Thursday, Japan's Financial Services Agency had said it would inject 80bn yen ($670m) into two regional banks -The Kinki Osaka Bank and The Higashi-Nippon Bank - to help bolster their capital base.

Opposition politicians denounced Mr Miyazawa's comments as irresponsible. They also said that he was trying to prepare the ground for further tax increases.

'Critical recession'

Earlier in the week the 81-year-old minister told Japan's parliamentary budget committee that the economy was "in critical recession".

His comments on Thursday contrast with government sentiment in the past. The government has expressed cautious optimism about the state of its economy.

It has also said that Japan needs to achieve a sustainable recovery before tackling its mounting debt.

Much of the debt has been accumulated through government spending programmes aimed at stimulating recovery.

Emergency economic package

However, growing fears of a recession have galvanised the government into action.

The ruling Liberal Democratic Party and its coalition partners are planning to unveil an emergency economic package imminently.

The package is expected to include measures to bolster the stock market and encourage consumer spending.

Japan is also due to announce gross domestic product figures on Monday which are expected to show the economy narrowly escaped recession in October-December.

The previous quarter showed a contraction of 0.6% and two successive quarters of negative growth constitutes a recession.

Last month the US ratings agency Standard & Poor's downgraded Japan's credit worthiness, citing the government's lack of progress in carrying out structural reform.

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