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Last Updated: Monday, 27 March 2006, 10:29 GMT 11:29 UK
Japan passes austere budget plan
Japanese factory
Japan's major manufacturers are more confident looking forward
Japan's parliament has passed the country's toughest budget for eight years, backing government efforts to cut the nation's vast public debt.

The budget reduces spending for the next fiscal year starting 1 April by 3% to 80 trillion yen ($686bn; 393bn).

Prime Minister Junichiro Koizumi has pledged to trim the public debt, which equals about 151% of the nation's economic output.

An official report on Monday showed a slight dip in business confidence.

The main cuts to the new budget affect aid for poor countries and defence spending.

Overseas assistance is being reduced by 3.4%, while Japan's military will have to endure a 0.9% cut in funds.

Weaker sentiment

The Ministry of Finance's business survey index (BSI) of sentiment at large manufacturing firms dipped to 3.1 in the first quarter of 2006, compared with 10.5 in the October to December period last year.

However, the survey found confidence about prospects for the coming months picking up.

I am reasonably confident about the outlook
Hiroshi Shiraishi, Lehman Brothers

The BSI outlook for big manufacturers was 6.8 for the April to June quarter, and 9.7 for July to September.

"A drop to 3.1 is reasonably big," said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo.

"But I am reasonably confident about the outlook. The outlook indices are pointing up, so overall it's not that bad.

"And this is after a very strong fourth quarter. So I'd call it a payback. You'd expect some kind of moderation."

The BSI survey is calculated by measuring the percentage of firms that expect the business environment to improve, and deducting those that expect it to worsen.

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