To: craig crawford who wrote (12275 ) 12/17/1997 7:43:00 AM From: Glenn D. Rudolph Respond to
Japan's Prime Minister Slashes Taxes
In Surprise Move That Boosts Nikkei
By DAVID P. HAMILTON
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- Japanese Prime Minister Ryutaro Hashimoto surprised financial
markets by announcing an unexpected income-tax cut valued at some two
trillion yen ($15.4 billion) in a surprise bid to revive the nation's
declining economy.
"I have said both domestically and abroad that we can't trigger a
world-wide depression beginning in Japan," Mr. Hashimoto told reporters
Wednesday morning in Tokyo. "So we decided that a bold policy needed to
be considered, and we decided to implement an emergency special tax
cut."
Link
See the latest developments from the Tokyo stock market.
Financial markets responded enthusiastically to the news Wednesday. The
Nikkei stock average shot up 555.85 points, or 3.5%. The yen
strengthened against the dollar, and was trading at 127.45 in late Tokyo
trading, up from 130.80 late Tuesday in New York.
Together with a separate 10 trillion yen package of government funds
aimed at bolstering confidence in Japan's shaky financial system, the
new tax cut represents the Japanese government's most serious effort yet
to deal with the malaise that has fallen over the economy. With the
consumer in the doldrums, a weak housing market and confidence in the
nation's banks and securities firms shaken by a recent spate of
financial-institution failures, Mr. Hashimoto apparently felt compelled
to take action.
Yet some economists warned that the tax cut, while welcome as a sign
that the government is getting more serious about stimulating the
economy, isn't likely to have much effect by itself. Among other things,
Mr. Hashimoto said the cut will be a one-time event, suggesting it will
be repealed again after a year.
"It's not going to turn the economy around," said Brian Rose, an
economist with SBC Warburg Japan Ltd. While under the best
circumstances, an income-tax cut of this magnitude could be expected to
boost growth by as much as 0.4 percentage point, he said, experience
with temporary tax cuts suggests that consumers will save half or more
of the extra money instead of spending it.
Mr. Hashimoto's announcement was unusual in several respects. It was not
foreshadowed by leaks to major Japanese newspapers, as were other
details of an economic package that is expected to be formally announced
late Wednesday in Tokyo. Other steps in that plan reportedly include a
corporate tax cut of roughly 850 billion yen, a halving of the
securities-transaction tax and a promise to eliminate it by 1999, and
relaxation of a real-estate transaction tax.
The emergency tax cut also represents a daring admission of error by the
proud Mr. Hashimoto, who late last year pledged to make reducing Japan's
swollen budget deficit one of his administration's top priorities. As
one of his first steps, however, Mr. Hashimoto approved an April
increase in the nationwide sales tax and a June rollback of an
income-tax rebate -- moves that hammered consumer confidence and brought
the economy to a standstill. To be sure, Mr. Hashimoto continued to
insist that the tax cut wouldn't violate his administration's pledge to
reduce the deficit.
