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Friday, 14 June, 2002, 05:23 GMT 06:23 UK
Koizumi gives in on tax cuts
Japanese prime minister Junichiro Koizumi
Koizumi is walking a tightrope as his popularity wanes
Japan is to get early tax cuts in the hope of revitalising demand in its battered economy.

But it is not yet clear where the money will come from to pay for them.

The change of tack is the result of pressure from senior figures within the ruling Liberal Democratic Party.

They have demanded that cuts kick in as early as January, rather than waiting for the beginning of the financial year in April.

Wher's the money?

Tax cuts are a thorny issue for prime minister Junichiro Koizumi, who has been wrestling with slumping popularity all year.

Most parts of the government are agreed on the need to reform the tax system, in the hope of boosting demand and corporate investment.

But the problem is finding the money.

Mr Koizumi has vowed not to issue more than 30 trillion yen ($242bn; 164bn) in government bonds this year, to minimise growth in Japan's already swollen public debt.

Accelerating the tax cuts could put that at risk - although finance minister Masajuro Shiokawa promised the cap would remain intact and no supplementary budget was planned.

Factions

In the meantime, though, the talks between ministers and senior figures in the traditionally faction-ridden LDP have forced the government's hand.

The situation exemplifies Mr Koizumi's current problems.

Despite healthy growth of 1.4% in the first three months of this year, Japan's economy is far from secure on the path to recovery from a decade of downturn, and observers are united in the view that radical reform is needed.

Last year, in the early months of his premiership, Mr Koizumi's popularity as a "non-standard" politician helped him ride out protests against policy shifts from his party's pork-barrel-fuelled faction bosses.

But a squalid piece of party infighting which saw the popular foreign minister Makiko Tanaka dismissed has halved his approval ratings, and Mr Koizumi's administration seems more and more to be returning to business as usual.


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