The new Japanese Finance Minister, Kiichi Miyazawa, promised yesterday to introduce tax cuts and extra spending to stimulate the recession-hit economy but the yen tumbled after he appeared to reject intervention.
In his first full news conference as finance minister, the 78-year-old former premier backed a permanent annual tax cut of six trillion yen ($42 billion) proposed by the new Prime Minister, Keizo Obuchi.
"The most effective way is to throw in money for consumption," Mr Miyazawa said, approving the issue of deficit-covering bonds to finance the tax cuts.
The much-criticised "fiscal reform law", which curbs state borrowing despite the urgent need for an economic cash injection, should be revised to allow the government to pull the economy out of its slump, he said.
"We should give priority to what is needed for an economic recovery and the (fiscal reform) law can be revised if necessary," he said.
But Mr Miyazawa distanced himself from a campaign promise by Mr Obuchi to spend 10 trillion yen ($70 billion) in the extra spending, on top of 16 trillion yen already committed.
Mr Obuchi had promised the supplementary budget during his campaign in the Liberal Democratic Party's presidential election last week.
"There may be a time when 10 trillion yen of extra spending is needed, but it may not be needed immediately after the comprehensive economic package totalling 16 trillion yen has just been launched," Mr Miyazawa said.
The new government appeared to be waking up to the size of Japan's problems.
The head of Japan's Economic Planning Agency tore up the previous government's official 1.9 per cent economic growth target for the year to next March.
"I think it is impossible," Taichi Sakaiya told his first news conference, adding the "economic situation is really severe and I cannot be optimistic."
On foreign exchange markets, the yen dropped after Mr Miyazawa said he had no confidence in market intervention. On Thursday, Miyazawa became the country's oldest finance minister since the second World War, making a dramatic comeback from scandal and a defeat as former premier of Japan in 1993.
He was finance minister from 1986 to 1988 after joining the LDP's mainstream faction, but had to resign when a Recruit employment and publishing stocks-for-favours scandal embroiled his top aide.
Miyazawa was behind the scenes in the birth of proposed legislation for a bridge bank to take over troubled financial institutions. His first task as finance minister is to ensure the legislation passes parliament.
The finance minister said he was ready to seek "agreeable points" with opposition parties in passing bridge bank bills in a 70-day extraordinary session of parliament which lasts until October 7th.
