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Japanese Government to Release an Anti-deflation Package - 2002-02-27

The Japanese government will release an anti-deflation package later Wednesday. The plan is expected to tackle a list of economic problems now gripping the world's second largest economy.

The Japanese public is awaiting the government's new anti-deflation package with a degree of skepticism. The package aims to battle the recession now gripping Japan and to end the phenomenon of falling prices on everything from homes to food to automobiles.

Deflation harms the economy by cutting consumer demand, hurting corporate cash flow and making debts more expensive to repay. Prices have been falling in Japan for more than two years.

Prime Minister Junichiro Koizumi has been trying unsuccessfully to revive Japan's ailing economy since he took office last April. Recent polls show that a growing number of people are losing faith in his reform efforts.

The government's plan is said to address the issue of bad bank loans by calling on banks to deal more aggressively with borrowers. It reportedly stops short of calling for an injection of public funds to keep troubled banks afloat, a technique that has already been used repeatedly with little success.

The anti-deflation plan also calls on the Bank of Japan to help boost the economy by purchasing more government bonds or cutting interest rates further, even though they are already close to zero.

Heizo Takenaka, state minister in charge of economic policy, says "the government will tell the central bank it is determined to prevent deflation and will expect an appropriate response."

In recent days Japanese financial officials have publicly pressured the central bank to ease monetary policy at the bank's board meeting set for Thursday. Local media reports say that the government also will ask the BOJ to provide special loans to troubled commercial banks.