TOKYO (AFX-ASIA) - Prime Minister Junichiro Koizumi said the government is prepared to be flexible on economic policy, taking drastic supportive measures if necessary, but plans to stick to its 30 trln yen limit on new bond issues. Japan will take appropriate action to stabilise its economy, currency and the financial system through cooperation with other major industrialised countries following the terrorist attacks on the US, Koizumi added. The premier's comments were made in a prepared speech to be delivered to the Lower House of parliament at the start of its extraordinary session. "The Japanese economy is on a wild sea of worldwide difficulties. We need to heed future economic developments to weather the storm," Koizumi said "We will take flexible and drastic measures depending on the future economy, though we are progressing with structural reforms to boost Japan's economic growth potential," he said. However, this does not mean giving up on the commitment to keep a lid on additional government spending. "The government will follow our proposed 30 trln yen bond-sales limit even when compiling a supplementary budget," Koizumi said. He said dealing banks' bad loans is the first priority. The government will strengthen bank inspections and ensure that loan-loss reserves should be determined after a special investigation by the Financial Services Agency based on market factors such as share prices and credit ratings. Koizumi reiterated that the government will extend the functions of the Resolution Collection Corp in buying bad loans and set prices for the loans flexibly, as well as offering funds to help restructure struggling companies. "Writing off banks' bad loans is the government's top priority," Koizumi said. "The government aims to normalise the banking industry's bad-loan problem in three years at the latest." He also reiterated the plan to set up a body to buy bank cross-shareholdings by January, as well as to reform public-linked corporations to help reduce government spending. Koizumi said the government aims to appoint 50,000 new teachers in elementary and middle schools, as well as doubling the creation of new venture businesses, from the current 180,000 per year, over the next five years.