Tokyo, Oct. 15 (Bloomberg) -- Japanese Prime Minister Junichiro Koizumi may propose tax cuts and guarantees for loans to small companies on Friday, fending off pressure to increase government spending to help spur economic growth. Koizumi said on Thursday he would prefer to wait until next year before deciding whether extra spending is required. Unless the Nikkei 225 Stock Average can recover from last week's 19-year low, analysts said he may be putting off the inevitable.
The appointment of a new banking regulator last month raised expectations the government will force banks to write off more than $420 billion of bad loans. Any crackdown by lenders on deadbeat borrowers will trigger more bankruptcies, putting pressure on Koizumi to spend money to spur the economy.
``If we get a further decline in stock prices and an increasing number of corporate bankruptcies and rising unemployment, it's inevitable'' the government will have to introduce an extra budget, said Masaaki Kanno, chief economist at J.P. Morgan Chase & Co. and a former Bank of Japan official.
Investors are looking for policy measures to complement the Bank of Japan's plan to spend 2 trillion yen ($16 billion) to buy shares held by banks in other companies, detailed last week.
Tax Cuts
Koizumi wants tax cuts of more than 1 trillion yen. His advisers are divided on how much more.
Non-government members of his main economic panel want more than 2.5 trillion yen in cuts and a reduction in the corporate tax rate. Finance Minister Masajuro Shiokawa, who is also on the panel, has ruled out a cut to the corporate tax rate in the next fiscal year and says 1.5 trillion yen is the most the country can afford.
Taro Aso, the Liberal Democratic Party's policy council chief, and other politicians are demanding reductions to land tax, more support for small and medium-sized companies and other steps to spur growth. A policy-making panel, headed by Koizumi, meets on Thursday to iron out the differences.
The government may also lift its self-imposed 30 trillion yen cap on new bond sales to help fund extra spending and make up for any tax cuts, the Nihon Keizai and Asahi Shimbun newspapers reported.
Koizumi said on Thursday he won't consider such a move this year. ``It depends on tax receipts -- we'll have to see where they come in,'' he said. //www.quote.bloomberg.com