Japan eyes tax cut, stock purchases


Koizumi says the details will be finalized after his round of international diplomacy, with visits to the United States this week and to North Korea next week

TOKYO, Japan (CNN) -- Japan's ruling coalition is mulling a tax cut and a proposal to buy stocks to turn around its economy and markets.

Japanese Prime Minister Junichiro Koizumi said Monday the details will be finalized when he returns from an international trip.

"My understanding is that banking and tax reforms are the most important points," he said of the policy discussions.

Local media report it may be ready as early as September 20.

An influential government panel, the Council on Economic and Fiscal Policy, on Monday decided to push a tax cut of at least 2.5 trillion yen ($21 billion), according to the Nihon Keizai Shimbun.

Some members are pushing for a cut of as much as 5 trillion yen ($42 billion).

Up to 1 percent of GDP

Economics Minister Heizo Takenaka, who cut short a trip to Italy to attend, noted the cut would amount to 0.5 percent of gross domestic product if it totals 2.5 trillion yen, and 1 percent of Japan's $4 trillion yen economy if it totals 5 trillion yen.

But the proposal is likely to meet opposition from the government's tax commission.

Koizumi has also proposed a plan to pump around 3 trillion yen ($25 billion) into the Tokyo stock market. (Full story)


The moves are a response to the selloff in Japan's stock market, which saw the Nikkei fall below 9,000 on Friday

Koizumi agreed to the plan over the weekend with key members of the Liberal Democratic Party. He said Monday he had passed on the proposal to government staff.

Japan's Nikkei stock index sank to 19-year lows last week, knocked by pessimism about recovery prospects both at home and in the United States.

At one point, the Nikkei crossed below 9,000 and hit 8,969.26, putting pressure on banks' capital reserves. They hold large amounts of stock and see their reserves decline with the market.

Not buying specific stocks

The money would come from public pension funds, which would buy Exchange Traded Funds. Those investment devices track the overall market by buying a pool of stock.

Buying ETFs would help the government avoid the need to pick specific stocks, which would raise a possible conflict of interest over policy.

But critics still fault the plan for opening the government pension money to higher risk. Some observers have suggested the government may have trouble selling later.

Koizumi leaves Monday for a five-day trip to the United States, to take part in a ceremony marking the anniversary of September 11.

The leader will address the United Nations and will also meet U.S. President George W. Bush.

Koizumi expects to outline his recovery package to fight deflation and his plans to force banks to shed bad loans, according to Japanese media.

Diplomacy on North Korea is expected to dominate the discussion. Koizumi is due to meet North Korean President Kim Jong Il on September 17.

Machinery orders up

Japan's core machinery orders for July rose 1.9 percent over the month before, the government reported on Monday. (Full story)

That was stronger than expected and the fourth straight month of gains.

Many economists had predicted a decline. But the effects of the recent stock market declines have not yet been reflected in the figures.