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Japanese PM Proposes Retroactive Tax Breaks

As part of a second anti-deflation package, Japanese prime minister Junichiro Koizumi proposes retroactive tax breaks. The move is seen as a shift by the Japanese government toward quick tax cuts and away from Mr. Koizumi's fiscal reform drive.

The announcement comes amid pressure from key policy makers in the governing coalition for tax cuts by the end of the current year.

Proponents say immediate tax cuts will help reinvigorate Japan's economy. Prime Minister Koizumi had been seen as reluctant to implement quick tax cuts because of limited government funds.

The move could force him to break his pledge to limit new government bond issues to 30 trillion yen for this fiscal year. Mr. Koizumi indicated to reporters that regardless of what is decided about the cut, some political groups are bound to be unhappy.

The prime minister says that many opinions came up during discussions this week and some coalition partners are still not satisfied, so he will continue discussions with them.

The tax cut plan was unveiled just before finance ministers from the Group of Seven leading industrialized nations are to meet in the next few days in Canada. The Koizumi government has been under pressure from G-7 nations, as well as the political old guard at home, to keep Japan's fledgling economic recovery on track.

Also in the Koizumi proposal: a call for legislation to reduce corporate taxes to promote research, development and investment, and easing of gift-tax regulations to bolster the transfer of assets from the elderly to their children and grandchildren.

Financial markets appeared to brush off the tax cut plan, in trading Friday. Japanese government bond prices rose slightly, while the Nikkei stock index fell two percent.

Some analysts say the plan is too limited to have any significant impact on the economy.