Japan Unveils Modest Plan to Spur Economy

Despite U.S. pressure for bolder steps to boost economic growth, Japan’s ruling party on Friday met a self-imposed deadline for a fresh economic stimulus package by proposing only a modest set of legal and regulatory changes.

Hopes for the package--which was timed for release ahead of today’s meeting in London of financial officials from the Group of Seven industrialized nations--had helped boost Japanese stocks in the last month from their lows of early January.

But as details of the Liberal Democratic Party’s plan leaked out in recent days, including word that the package would contain neither tax cuts nor spending programs, stocks gave up some gains.

The plan’s measures, most of which are expected to be enacted into law within a few months, might help banks reduce their massive bad loans and corporations increase their share prices.

The 225-share Nikkei index rose 139.76 points, or 0.84%, to close at 16,765.24 Friday. The market was supported by buying from government pension funds, traders said. The dollar rose above 127 yen at one point in the afternoon, easing slightly to 126.82 in late afternoon trading, compared with 126.18 on Friday morning. In New York, the dollar later rose to 128 yen.

“The markets already knew what was going to come out, so there was almost no reaction to this,” said Chang Yi, an analyst at Kokusai Securities Co.

At the meeting in London, U.S. and other G-7 officials are expected to urge Tokyo to take much stronger steps to boost economic growth so that Japan can help ease the Asian financial crisis.

Japan could do that, Clinton administration officials have stressed, by not only putting its own financial house in better order but by providing a stronger market for neighboring countries that have been bailed out by the International Monetary Fund.

Faster growth would lead to Japan importing more products from other countries, including the United States and troubled Southeast Asian nations such as Thailand and Indonesia. Japanese growth in the fiscal year ending March 31 is expected to be close to zero.

Speaking with reporters in Washington before leaving for the London meeting, U.S. Treasury Secretary Robert E. Rubin said the finance ministers are likely to discuss “what can Japan do to get back on a good, solid path of domestic demand-led growth.”

“If Japan were on a strong economic track led by domestic demand-led growth, it would be a larger market for Asian goods, a source of greater bank credit and other capital flows, and a wellspring of confidence for the region,” Rubin said.

In addition to domestic measures, the package announced by the Liberal Democratic Party on Friday included plans to fund $2.38 billion in loans through the state-run Export-Import Bank to support economic stabilization in Asia. That plan appeared to be part of a broader program likely to win G-7 approval in London.

Key domestic measures in this latest economic stimulus package include a plan for converting bad loans backed by real estate collateral into securities that can be bought and sold, with the possibility that funds from government-run savings and insurance programs might be invested in them.

Other steps would make it easier for companies to buy back their own stock, which is seen as a way to boost prices, and allow companies to value land at the price they paid for it or its market value, whichever they prefer.

While Japanese real estate prices have plunged since 1990, land values are still far above the levels of decades ago, when many firms acquired property.

Valuing long-held land at higher prices boosts the capital of banks and corporations, which may help some banks lend more freely and some companies borrow more freely. Officials hope that revaluing land could stimulate investment and other spending by increasing the flow of funds throughout the economy.

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Etsuko Kawase of The Times’ Tokyo bureau contributed to this report.