Japan's ruling Liberal Democratic Party yesterday announced the third package in as many months aimed at averting disaster in Japan's financial industry. The package was immediately greeted with disappointment by analysts. It later received only a lukewarm welcome by US officials.
The proposals, which must go before parliament, include 850 billion yen (£4.5 billion) of tax cuts to boost the moribund economy and the possibility of the government borrowing Y10,000 billion to provide emergency aid for some financial institutions.
Mr Ryutaro Hashimoto, Prime Minister, said: "We are taking bold measures. No matter what happens, we will prevent Japan from causing a worsening of the world economy. As I have repeatedly said, there will not be a world panic sparked by Japan."
However, in a clear indication that the US intends to push Japan to do more to lead Asia out of its economic problems, Mr Robert Rubin, the Treasury Secretary, said: "Japan has an enormous opportunity to play a leadership role . . . By putting their own house in order, they can help the rest of the world, too."
The failures last month of two leading securities companies - Yamaichi Securities and Sanyo Securities - and a large regional bank - Hokkaido Takushoku Bank - led to sharp falls in stock markets around the world. There have been widespread fears that other Japanese financial institutions could collapse, leading to further tightening of credit in Asia, and the sale of Japan's holdings of US treasuries.
US officials gave a cautious welcome to the measures aimed at restoring financial stability but were sceptical about the impact of the fiscal measures designed to bolster demand.
Economists said the tax cuts announced yesterday would do little to boost the economy.
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