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Tuesday, November 18, 1997 Published at 06:46 GMT


Tokyo acts to kick-start economy

The stock market rose sharply after the package was announced

The Japanese stock market has responded positively to a statement from Prime Minister Ryutaro Hashimoto that he might use public funds to help stimulate the country's flagging economy.

The Nikkei Stock Average of 225 issues closed at 16,726.57 points on the Tokyo Stock Exchange, up 443.25 points from Monday.

The Prime Minister's comments were part of a long-awaited package of deregulatory measures.

[ image: Banks may benefit from public funds]
Banks may benefit from public funds
Asked what he thought about the use of public funds to help banks deal with their problems, Jiji news agency quoted him as saying: "We will hold an economic ministers' meeting now with those issues in mind."

The plan, unveiled by the Economic Planning Agency, does not include an increase in government spending, which business leaders have called for as a way to give an immediate boost to the economy.

While it promised nothing now, the government said it would still consider lowering corporate and land taxes with a final decision due in December.

"Although the package doesn't contain any fiscal spending, deregulation measures should have real effect on domestic demand," Koji Omi, head of the Economic Planning Agency, said before the plan was formally announced.

Some of its key components include increasing government loans to small- and medium-size businesses, a promise to study ways to lower corporate taxes and speeding up construction of a national fibre-optic network.

Prime Minister Ryutaro Hashimoto has shied away from tax cuts or government spending increases in line with his pledge to cut government debt.

Some economists worry, though, that while Hashimoto focuses on cleaning up government finances Japan may slide into recession.

[ image: Bronwyn Curtis]
Bronwyn Curtis
Bronwyn Curtis, chief economist with Nomura, said: "This not the turning point. Using public money is still a problem.

"They haven't reached the point where they are going to take the bull by the horns and really do something."

The latest figures available show the Japanese economy contracted at an annual rate of 11.2% in the April-June quarter as consumers cut spending after a tax increase in April.

Real gross domestic product fell 2.9% in the period, the biggest single quarter drop since the first oil shock hit Japan in 1974.

Meanwhile, Hong Kong stocks fell in early trading on Tuesday because of profit-taking and concerns over the turmoil in South Korea's financial markets.

About 50 minutes into trading, the Hang Seng index tumbled 127.71 points, or 1.2%, to 10,292.04. It surged 462.42 points on Monday, the third consecutive rising session.

Bronwyn Curtis, chief economist with Nomura, comments on the package of reforms.

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