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Wednesday, November 11, 1998 Published at 17:14 GMT

Business: The Economy

Japan mulls tax cuts to boost economy

Shops would get a much-needed boost if the sales tax were suspended

Speculation is growing that Japan's ruling Liberal Democratic Party (LDP) is to cut taxes to help the country's flagging economy.

The possibility of a tax cut followed reports that the governing party and the Liberal opposition party are to meet next week to discuss the temporary suspension of the 5% sales tax.

The suspension of the taxes however has caused a crisis of confidence in the ruling party as some members fear they are being pushed into a deal.

[ image: Japanese consumers are saving instead of spending to boost the economy]
Japanese consumers are saving instead of spending to boost the economy
The LPD, which does not hold a majority in the Upper House of parliament, relies on the backing of opposition parties to pass legislation.

But LDP Secretary-General Yoshiro Mori said that some party members were still strongly against the idea and that discussions on the issue had been difficult.


On Tuesday, the LDP agreed with the Buddhist-backed New Komeito party to hand out ¥700bn (£3.6bn) in shopping coupons to the elderly and families with children as part of an economic stimulus package.

To further fuel the speculation, the LDP and the Liberals also agreed to set up a policy-debating committee.

[ image: Finance Minister Kiichi Miyazawa: Suspending the sales tax will not be easy]
Finance Minister Kiichi Miyazawa: Suspending the sales tax will not be easy
But the LDP's hands are tied.

Yukihiko Ikeda, chairman of the LDP's Policy Research Council, said earlier this week that he was opposed to any cuts in the sales tax.

He said the consensus within the party was to avoid any lowering of the tax rate as the sales tax is and will be a major source of funds for welfare policies.

Finance Minister Kiichi Miyazawa reiterated on Wednesday that lowering or suspending the sales tax was "not easy".

Yen soars

Hopes of the tax cuts pushed up Tokyo stock prices and the yen. The benchmark Nikkei finished 2.27% higher at 14,428.02.

Traders said they would welcome the cuts.

"If the government, which was so opposed to cutting the tax, really indicates it is serious, that would have a positive impact for the yen, at least initially," said a forex dealer at a major city bank.

US Treasury Secretary Robert Rubin said earlier this week that it was critical for the world for the Japanese economy to get back on a track of sustained economic growth.

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