Asian markets climb as Japan tax puzzle clears

Asian markets climb as Japan tax puzzle clears

SINGAPORE (Reuters): Asian markets ended broadly higher yesterday as Japan's dithering policy makers swung back towards tax cuts and traders welcomed some rare spots of positive news.

Tokyo stocks and the yen firmed after a series of comments by politicians helped restore confidence that the government would cut taxes permanently to help drag the economy out of recession.

The Nikkei 225 average rose 0.40 percent to 16,416.28 and the yen kept on the strong side of 140 to the dollar.

Most other regional stocks were up, reassured by the brighter mood in Tokyo.

Indonesian and South Korean shares jumped nearly three percent as sentiment perked up on their crisis-ravaged markets.

But thin trade saw Hong Kong shares slip by the close, and shares in Singapore suffered a bout of depression after the island's prime minister warned of a likely recession next year.

Traders said the Nikkei was boosted in early trade after Economic Planning Agency Minister Koji Omi told a news conference the government would begin consideration of tax cuts after the crucial Upper House elections on July 12.

Optimism was boosted further in the afternoon after the ruling Liberal Democratic Party's chief policy maker, Taku Yamasaki, was quoted as saying discussions on reforming the tax system were in their final stages.

Critics of Japan have long called for permanent tax cuts as the most effective way of reviving its dormant economy.

But policymakers have often appeared to be in disarray over whether to go ahead with cuts -- a perception strengthened over the weekend when Prime Minister Ryutaro Hashimoto seemed to pour cold water on the idea.

But dealers said confidence was now growing that permanent cuts would be forthcoming once Sunday's election was out of the way.

"It's a question of when and how much," said Masayuki Nishina, a trader at New Japan Securities. "That's why the market has the support it has."

Hong Kong shares drifted lower as dealers shrugged off the positive news from Japan and remained skittish over the local market's prospects.

Daily turnover was at its lowest for over a month.

"No one is going to be jumping in and out of the market in the short term," said Alistair Candlish of W.I. Carr Securities. "Not many shorts have been taken off because everybody believes that in the balance we are going lower."

The Hang Seng Index ended down 0.47 percent at 8,444.18. Hopes that the Indonesian government would soon get rid of more of its shares in state-controlled companies helped Jakarta stocks sharply higher, dealers said.

They said sentiment on blue-chips was upbeat after news of government plans to divest its stake in cement manufacturer Semen Gresik to foreign investors at an attractive price.

The main Composite Index closed up 2.83 percent at 483.86, but the rupiah continued to languish near 15,000 to the dollar.

A sharp fall in interest rates sparked strong buying interest in South Korean blue-chip firms, helping the overall Seoul index to healthy gains.

The main index ended at 317.50, a rise of 2.55 percent.

Singapore shares and the local dollar were hit by a forthright government admission that the economy could be heading for a recession in 1999, if not sooner.

"This year we don't expect a recession unless things go terribly wrong in the last quarter," Prime Minister Goh Chok Tong told reporters.

"But I think for next year, the possibility of a recession is fairly high."

The key Straits Times Index gave up early gains to end down 1.09 percent at 1,115.18 and the Singapore dollar drifted below 1.70 against its U.S. counterpart.

Share prices in neighbouring Malaysia ended lower after an announcement by Deputy Prime Minister Anwar Ibrahim that the country's economic growth forecast for 1998 would be revised from the current two-to-three percent range.

Markets reacted negatively as traders interpreted a "revision" as meaning a "downward revision".

The main index ended off 1.31 percent at 467.55. Thai stocks ended 0.47 percent up at 272.28, and Manila shares closed a few points higher after profit-taking shaved early gains.