Japanese Economics Minister Heizo Takenaka said yesterday he expected a cyclical upturn in the economy in the second half of this year, but stressed the need for structural reforms to make the improvement sustainable.
"From the cyclical point of view, I think there will be clear improvement in the second half of this year," Takenaka told a television program on the privately-run Fuji network.
"But we need to improve structural issues in the economy to strengthen Japan's potential. Otherwise the cyclical movement will be short-lived," he said.
Japan's economy is suffering its longest recession in nearly a decade, but there are signs of brightening in some areas, such as exports and inventories, mainly thanks to a rebound in the US economy.
Turning to tax reforms, Takenaka said he wanted to consider tax cuts to help the economy, but to make this feasible the government should cut spending instead of issuing more Japanese government bonds.
"We have to keep to ?30 trillion [the cap on annual new government bond issuance] so we should not issue more deficit-financing bonds," Takenaka said.
"But we need to cut taxes to help boost the economy and to finance the tax cuts, we need to cut unnecessary spending, for instance by ?500 billion to ?1 trillion," he said.
Takenaka said tax cuts to help corporate capital spending and research will likely be included in the tax reform discussion.
The government is to set the direction for tax reform discussions next week and plans to compile a report in June.