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Panel seeks cure for economic ills that plague Japan

Japan is set to announce on Friday a series of measures aimed at supporting an economy that is likely to be hurt in the near term by the government's plan to speed up write-offs of bad loans by the nation's banks.

With tax revenues falling and the national debt exploding, however, such measures may, at best, only prevent another recession instead of spurring growth, experts said.

Prime Minister Junichiro Koizumi's Council on Economic and Fiscal Policy favors tax cuts and other support worth no more than Janpanese yen 5 trillion (US$40.2 billion), or about 1 percent of the nation's gross domestic product. But the council has said that accelerating write-offs of the estimated US$423 billion in bad loans will depress growth by an equal amount, 1 percent, as bankruptcies and unemployment rise. Worse, the government expects to raise social security taxes next year, a step that would wipe out most of the potential benefits of any tax cuts.

Still, the government's report on Friday is expected to include calls for tax cuts of Japanese yen 2.5 trillion (US$20.1 billion), mostly aimed at companies. It is also likely to recommend expanding low-cost loan programs for small businesses under pressure from their banks, and it is expected to propose broader unemployment benefits.

The council may also call on the Bank of Japan to loosen monetary policy further to counter the negative effects of the write-offs of bad loans.

The governor of the Bank of Japan, Masaru Hayami, who is a member of the economic council, said the group had not discussed the bank's monetary policy at Thursday's meeting. The central bank's policy board will meet on Oct. 30.

While the government scrambles to find ways to bolster growth as the nine-month recovery loses steam, one of the few drivers of the economy -- exports -- is slowing. Shipments overseas have fallen for three months in a row on a seasonally adjusted basis as growth in the US and Asia has slowed. That, combined with continued weakness in capital spending and new-home starts, makes it increasingly likely that Japan's economy will tip back into recession, analysts said.

"We are in for tough times," said Kazutaka Kirishima, an economist at the Sumitomo-Life Research Institute, adding: "The risk of a double-dip recession is high. The government's stimulus package will have little impact in this environment."

If the government carries through with its plan to push banks to write off their bad loans faster, the unemployment rate could easily spike to 7 percent from the current 5.4 percent, economists said.

Personal bankruptcies are also likely to rise. The number of people filing for bankruptcy was already on track to grow nearly 40 percent this year, according to The Nihon Keizai Shimbun, the leading Japanese business newspaper.

The government fears that its push to get the banks to write off their bad loans will lead to a credit squeeze in which even healthy companies have trouble getting money, as happened in 1998 and 1999. Most of the measures it is considering are aimed at helping businesses get the financing they need to keep employees working.

Koizumi's council said the government would create more jobs, but it offered few specifics.
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