Japan's coalition presents reform plans

Shizuka Kamei is presenting a turnaround plan for Japan's woes

In this story: Political "vacuum" the real problem Miyazawa apologizes A history of failed plans RELATED STORIES

By Staff and wire reports

TOKYO, Japan -- Japan's ruling coalition on Friday announced its turnaround plans for the economy.

Its finance minister also apologized for saying the country's finances were on the brink of disaster.

The long-awaited stimulus package now goes to Prime Minister Yoshiro Mori for approval. Any proposals then need to pass through Japan's legislature.

The plan aims to prop up Japan's faltering markets with measures to encourage investing. The key points, experts say, revolve around tax issues, such as cutting capital-gains taxes.

Though analysts said the plan moves in the right direction, they were skeptical it would produce results. Some faulted it for not tackling Japan's most-serious problems.

"It's just tinkering around the edges," said Marshall Gittler, Japan economist for Bank of America. He noted the plan included no steps to force Japan's banks to write off bad debts. "They've avoided all of the main structural problems."

Political "vacuum" the real problem

Shizuka Kamei, policy chief of the dominant Liberal Democratic Party (LDP), unveiled the plan. Coalition parties have been toiling on it for weeks.

He said Mori would like to consider the proposals as soon as possible.

But market watchers say Mori's record unpopularity limits the effectiveness of any government-backed plan. Reports of Mori's resignation swirl daily and are swiftly denied.

"The political vacuum we are going to have for the next month or so is the real problem," said Masaaki Kanno, chief economist for J.P. Morgan in Tokyo.

Kanno noted that many of the proposals had cropped up before. But few made it into law.

One key recommendation calls for reducing the amount of inheritance tax on stock holdings. Experts believe such measures could tempt individual investors back to Japan's beleaguered stock market.

"The direction [of the proposals] is right," Kanno said. "The thorny question is whether they will be implemented or not."

Miyazawa apologizes

The package includes plans to boost liquidity in the real-estate sector, including a review of taxes.

It also called for creating a private fund to absorb sales of shares held by companies in each other. Those are known as "cross-held" shares.

The coalition also called on the Bank of Japan (BOJ) to set a target for price stability, an inflation-related measure, and to inject more money into the Japanese economy.

The Japanese government has been locked in a power struggle with the Bank of Japan. Bank of Japan Governor Masaru Hayami responded Friday that the bank could not adopt a policy of setting an inflation target.

Earlier Friday, Finance Minister Kiichi Miyazawa apologized for comments he made to parliament. Miyazawa said Thursday that Japan's finances "are very close to collapsing."

His frankness surprised many analysts, though Japan's economic woes have been clear for some time.

"I thought I was saying what I had always said, but the wording was inappropriate. I apologize," he told reporters.

A history of failed plans

The Japanese government has a long history of introducing economic packages in March, to little effect.

Since 1992 the country has enacted 10 extra budgets totaling more than $1 trillion to try to lift the world's second-largest economy out of its longest post-war slump.

Experts said this plan is different, in that it mainly aims to encourage stock investing. It does not revolve around public spending.

Still, economics minister Taro Aso suggested Friday that the government might need to step in.

"If the economy worsens more than we had expected, I think we need fiscal spending," Aso said.

The proposals came after the close of the stock market. Experts predicted a "wait-and-see" market reaction, depending on Mori's successor.

The Nikkei 225 average finished the day 0.18 percent lower at 12,628. That's around 4 percent higher than the 15-year lows it set last week.

After the package was announced, the yen tested session highs at 119.85 to the U.S. dollar. On Thursday, it briefly crossed the 120 mark.

The yen could well hit 125 to the dollar by June, according to Rebecca Patterson, regional head of foreign-exchange research for J.P. Morgan.

"Japan simply needs a weak yen to recover," she said.

Reuters contributed to this report.

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Japan's finances "close to collapsing"

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