MW: Japan tax-cut plan doesn’t give much support to stocks
By Lisa Twaronite, MarketWatch
TOKYO (MarketWatch) — Japanese business leaders Tuesday welcomed Prime Minister Naoto Kan’s proposal to cut the nation’s corporate tax rate, though the market reaction to the move was muted.
Kan proposed cutting the nation’s 40% corporate tax rate by five percentage points starting in the fiscal year beginning April 1, he told reporters late Monday.
In afternoon trading Tuesday, the Nikkei Stock Average (JP:NI225 10,300, +6.48, +0.06%) was 0.1% lower while the broader Topix added less than 0.1%.
Japan Business Federation Chairman Hiromasa Yonekura on Tuesday morning welcomed the government’s decision, calling the move a step toward realizing its growth strategy, according to Nikkei.
The federation, also known as Nippon Keidanren, had been calling for the corporate tax cut, to bring Japan’s rate more in line with the international average of 25-30%.
Yonekura said he would do all he can to expand domestic investment and employment to meet the government’s expectations, and that the move had a big effect in terms of showing Japanese government leadership to the rest of the world.
The government could submit the tax bill to Japan’s parliament early next year, but its passage is uncertain.
The Asahi Shimbun daily newspaper reported Tuesday support for Kan’s government had fallen to its worst level since he took office in June. Support was at 21% in the latest poll, down from 27% last month, while 60% of respondents said they disapproved of Kan’s administration.
Kan reportedly offered no details on how the cut would be financed.
“Although current estimates suggest a funding shortfall of several hundred billion yen, the government should be able to cover this through adjustments elsewhere,” said Barclays Capital analysts Chotaro Morita and Kiyoko Ikuta.
The government has vowed to keep new bond issues at the current fiscal year’s level of about 44 trillion yen ($527 billion) and general spending excluding debt-servicing costs at the current 71 trillion yen.
“On balance, we would not expect the tax cut to undermine the plan to cap JGB issuance,” the analysts wrote in a note to clients Tuesday.
