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Strategies & Market Trends : JAPAN-Nikkei-Time to go back up? -- Ignore unavailable to you. Want to Upgrade?

To: chirodoc who wrote (948)	4/25/1998 1:31:00 AM
From: chirodoc	Respond to of 3902

Friday April 24, 11:41 am Eastern Time FOCUS-Japan tax reform key for market taskmasters (Updates with approval of package, fresh comment) By Linda Sieg TOKYO, April 24 (Reuters) - Policy-makers struggling to cheer up markets and boost Japan's economy must hunker down and tackle the touchy issue of tax reform if they wish to please their harsh market taskmasters. Economists said a giant stimulus package set to be approved on Friday would keep the economy from shrinking this business year and next, but left key questions over permanent tax cuts and other structural reforms unanswered. Still, hopes were growing that authorities were leaning towards the tax reform that many say is vital, and some warned against the dangers of too-persistent pessimism. ''It's hard to think that nothing will happen after spending that much money,'' said Dai-Ichi Securities analyst Giichi Mimura. ''It may be too late, but it's not too little.'' Prime Minister Ryutaro Hashimoto said on Friday morning that a blue-ribbon advisory panel had decided to put back the target date for halving Japan's budget deficit to three percent of GDP by two years to the fiscal year ending March 2006. The decision on how to revise the Fiscal Reform Law paved the way for announcement of a stimulus package worth over 16 trillion yen ($123 billion). That includes over 12 trillion yen in real demand stimulus, comprising 7.7 trillion yen in public works spending and an extra four trillion yen in income tax cuts split between 1998 and 1999. Economists said the steps would give a temporary boost to Japan's limp economy, which almost surely suffered its first recession in more than two decades in the year ended March 31. ''First, it's important to acknowledge the amount of the package is not small,'' said Kazuyuki Shibayama, Japan economist at Deutsche Morgan Grenfell, adding that he estimated the measures would help the economy achieve 0.5 percent growth in 1998/99 and 1.5 percent growth the year after. That was rather less than the two percent boost predicted by the Economic Planning Agency over a 12-month period starting from sometime this summer. Financial markets, however, were far more interested in signs that policy-makers were opening the door another crack for the permanent income and corporate tax cuts that many say are needed to create incentives to work, innovate and invest. Hopes were raised after Finance Minister Hikaru Matsunaga told a news conference that the tax panel of the ruling Liberal Democratic Party would keep considering permanent tax cuts. The package, however, gave no new clues to the outlook for real tax reform and permanent cuts -- an omission some said had more to do with election politics than economics. The income tax cuts decided on for this year and next are uniform for all income levels and so cannot be made permanent in that form, said Haruo Shimada, a Keio University economics professor and member of the government's Tax Commission. ''Major tax reform has to include reducing the minimum taxable income level, because there is more or less a consensus that they have to reduce the highest marginal tax rate,'' Shimada told Reuters. ''But this is very, very dangerous before an election. After the election, the discussion will be different.'' The ruling Liberal Democratic Party is keen to regain its majority in an Upper House election set for July. ''That makes things very, very difficult to understand for the public and overseas,'' Shimada said, adding that he hoped the government could reach a decision by the end of this year. Some analysts said momentum for permanent tax cuts was growing. ''They seem to be moving towards trying to get something more hardwired into the the tax system,'' said Darrel Whitten, head of research at ABM AMRO. Others were not so sure. ''There might be (permanent tax cuts) but it might be difficult because the revision of the fiscal reform law is limited,'' Deutsche Morgan Grenfell's Shibayama said. Critics of Japan's piece-meal policies argue that the economy badly needs a dose not only of tax reform, but also drastic steps to clean up banks' bad loans, bolder deregulation -- and a change in mindset to a small government philosophy. Small government? ''They just don't believe in it,'' said Merrill Lynch economist Ron Bevacqua. ''I don't think the citizens believe in it either.'' Optimists, however, argue first that the fiscal stimulus will help more than many suspect and second, that policy is moving -- albeit slowly -- in the right direction. ''I think we're getting more and more positive surprises,'' said Larry Duke, a vice president at Citibank in Tokyo. ''The proof will be in the economic data...even with the April data, we could see a change but probably summer is where the trend will be more visible.'' .......now is too early to buy more than a small japan position. this summer could be a very good time. one year from now will be too late. ......imho this is the time to seriously start sniffing around for the best long term japanese stocks. curtis