Japan pledges to beat deflation and cut corporation tax

Naoto Kan New premier Naoto Kan wants to cut Japan's debt levels

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Japan's new government has pledged to slash corporation tax and beat deflation to achieve stable economic growth of 2% a year.

It said it aims to defeat deflation by April 2011, but revealed few details on how it would achieve this.

The government also said it would cut corporate tax from 40% to nearer 25%.

Earlier this week, Japan's central bank announced plans for up to 3 trillion yen (£22bn; $33bn) in loans to spur economic growth.

The plans mark the first time Japan has set a time frame for tackling deflation, which has plagued the economy for much of the last two decades.

JAPAN IN FIGURES

  • Government debt: 200% of GDP
  • Government deficit: 8% of GDP
  • External surplus: 2.5-3.5% of GDP
  • GDP growth: 3%
  • Inflation: -1.5%
  • 30-year bond yield: 2%

Source: Daiwa

Persistent deflation has hampered economic growth, with consumers opting to hold off on making major purchases, expecting prices to fall even further.

However, the ambition of the new government was met with scepticism by some analysts.

"The growth targets don't sound like anything new to me, just wishful thinking," said Junko Nishioka at RBS Securities.

Japan's growth averaged just 1.3% a year before the recession brought on by the financial crisis.

Like many other developed economies, Japan is also suffering from high levels of sovereign debt.

Its plans for cutting borrowing levels are due to be announced next week.

New Prime Minister Naoto Kan has made cutting the country's deficit his priority.

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