Markets give thumbs-down to Hashimoto fiscal package

THE FINANCIAL markets yesterday gave the thumbs-down to Japan's economic stimulus package, forcing the country's central bank to intervene massively on the foreign exchanges to prop up the yen for a second day running.

Dealers said that the Bank of Japan had sold up to $5bn to try to knock the dollar back. At one point the dollar was down by more than four yen at 127.4 but it rallied later in the day to close a shade below 129.

The Nikkei index of leading shares also felt the strain, falling by 1.5 per cent at one point as doubts grew about whether the government's package of tax cuts would prove decisive enough. It rallied to close down 55.54 points, or 0.34 per cent, at 16,481.12.

It was the second day in succession that the BoJ had intervened to defend the yen following the announcement of the long-awaited 10 trillion (pounds 45bn) package of measures to reflate the economy. On Thursday the BoJ is estimated to have intervened in the New York currency markets, selling up to $2bn.

Spirits were lifted slightly by an indication from the Japanese Prime Minister Ryuarto Hashimoto that he may ask the ruling Liberal Democratic Party to make the tax cut announced this week a permanent fixture. "I have said that I will ask the tax panels of the LDP and the government to discuss the issue soon," he added.

But the mood of optimism was tempered by another downbeat assessment of the economy from Japan's Economic Planning Agency. In its monthly report the agency said: "Consumer and corporate sentiment, which worsened last year, are affecting all of the real economy. The economy is stagnant and conditions are becoming worse."

The report added that the economic stimulus package, likely to total more than 10 trillion, would have a significant impact. Employment conditions were having a considerable impact on spending habits and that was something to be considered when thinking of how to boost consumption.