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Mon, Dec 27, 2004 - Page 12 News List

Japan must watch impact of yen, oil, minister says

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Japan must "carefully watch" the impact of the yen's gain against the dollar and rising oil prices, after the government last week cut its outlook on the economy, Finance Minister Sadakazu Tanigaki said.

"There are some uneasy spots in the current economy," Tanigaki said yesterday in Tokyo on an NHK television program. "The move in the currency and the rise in oil prices are the issues we need to monitor."

Japan's Cabinet Office on Dec. 20 said it became more pessimistic about the economy for a second straight month as industrial production fell and export growth slowed. A 6.7 percent gain in the yen against the dollar in the past three months may cut the value of exporters' overseas sales.

Production had its biggest drop in eight months in October as higher crude oil prices curbed demand for electronic parts and devices. Oil prices have risen 36 percent this year.

On the positive side, corporate profits are improving and unemployment has bottomed out, Tanigaki said on NHK.

Japan last week forecast 1.6 percent economic growth for the fiscal year starting April 1, following a 2.1 percent increase it expects for the current year. Such an expansion would mark the longest growth streak in more than a decade.

The Bank of Japan's Tankan survey on Dec. 15 showed large manufacturers plan to increase capital spending 23.4 percent in the year ending March 31, the biggest increase in 16 years, compared with a prediction of 20.7 percent growth in the September survey. Companies expect profits to rise 69.9 percent this fiscal year, compared with an earlier estimate of 65.5 percent growth.

"Corporate performance is recovering greatly, and that improvement is spreading to households," Tanigaki said. "The economy on the whole will probably stay firm."

Tanigaki also said Japan has reduced bad loans enough to underpin economic recovery, decreasing the need to maintain some cuts on income tax.

The government plans to reduce new bond sales, which bridge the gap between spending and revenue, by 6 percent to ?34.4 trillion (US$332 billion) in the year starting April next year, as tax revenue is expected to rise <

The government plans over the next two years to phase out income tax cuts adopted in 1999, generating ?170 billion in the next fiscal year.

"The basic conditions have changed compared with the time when we saw a series of bankruptcies in financial institutions," Tanigaki said. "It's inevitable we're discussing ending some income tax cuts."

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