Japan in battle to calm fears

THE GOVERNOR of the Bank of Japan and a leading businessman yesterday attempted to put a positive spin on Japan's economic difficulties, in advance of an anticipated announcement of record tax cuts by Ryutaro Hashimoto, the prime minister, writes Richard Lloyd Parry in Tokyo.

In an appearance before a parliamentary committee, Masaru Hayami, the bank's governor, acknowledged the Japanese economy was stagnant, but insisted that "one cannot say it has reached a recession".

Stock and currency prices have risen over the last two days, after sharp falls last week and dire predictions of imminent economic collapse, by the chairman of Sony, Norio Ohga.

But the vice-president of Toyota, Kanji Kurioka, insisted that the situation had been exaggerated by the media, and expressed faith in a 16 trillion yen economic stimulus plan. "I think there are some very solid elements of consumer demand," he said. "If the government's 16 trillion yen is taken positively by the public, and if banks don't just hold on to their money and begin lending to companies, Japan's car market will recover from June or July."

The details package have so far remained vague, and scepticism has focused on the amount of fresh spending which it will actually include. But yesterday the Nikkei average closed at 15,978.72, up 272.73 points, or 1.74 per cent, after further hints of a package of tax cuts, perhaps as large as 8 trillion yen, to be announced by Mr Hashimoto today or tomorrow.

Yutaka Yamaguchi, the Bank of Japan's deputy governor said the bank might further reduce interest rates, already close to zero, to avoid deflation.

"There is still room to influence market interest rates," he told the finance committee of the lower house of the Japanese Diet.