Tokyo, July 3: Just as parliamentary election campaign hit stride on Friday, prime minister Ryutaro Hashimoto strongly hinted an intention to make permanent income tax cuts.A day after approving a huge banking sector clean-up plan and barely a week before Upper House polls, Hashimoto was quoted by Japanese media as addressing the idea of making stimulative one-off income tax cuts permanent.``Rather than taking the form of special tax cuts, I hope there will be permanent tax system reform. And that's the direction I think it will go,'' Kyodo news service quoted the premier as telling a news conference in Kumamoto in southwestern Japan.Kyodo said the remark meant he is considering permanent income tax cuts, while Jiji news agency dubbed it a tax-cut announcement.Whatever the nuance, the comment jolted financial markets. The Japanese currency jumped instantly by more than two yen against the dollar, although it gave up half that gain within a few minutes. Tokyo stocks rebounded sharply and interestrates climbed as government bond prices tumbled.Some people remained sceptical that the thorny issue could be resolved with a simple campaign statement.Hashimoto ``is right in the middle of an electoral campaign,'' said senior analyst Martin Foster at Standard & Poor's MMS. ``Until we get more on this, we're talking about electioneering rather than fiscal policy.''Nonetheless, expectations have grown in recent days that some sort of pre-election tax-cut statement was in the works.Influential US investment adviser Richard Medley told Reuters Television earlier on Friday that he expects an announcement within a couple of weeks of a fiscal stimulus package worth six trillion ($42.8 billion) to seven trillion yen.Medley, in Tokyo this week advising senior government and ruling party officials on the banking system clean-up, told Reuters Television: ``They are definitely committed to and they will pass by the end of this year a major supply-side reform in taxes, bringing the top rates of both theresidential - the local - taxes and the national (income) taxes down significantly, probably to a top rate of around 45 per cent.'' Japan has been under international pressure to do just that. After shifting the emphasis to cleaning up the financial sector mess, Tokyo announced on Thursday night a plan to set up public ``bridge banks'' that would continue lending to sound borrowers if their banks fail.Within hours of the announcement, US treasury secretary Robert Rubin welcomed the plan but also urged quick action on ``sustained and substantial fiscal stimulus.''A member of the government's Tax Commission, Haruo Shimada,told Reuters earlier in the week that the LDP would likely express its intent to cut taxes before the July 12 Upper House polls - in order to woo voters and mollify the United States.``They would like to buy the advantage.in the election, and they are really thinking about the strong advice given by (Rubin deputy Lawrence) Summers,'' said, professor Shimada at Tokyo's KeioUniversity.
