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The Liberal Democratic Party and the Liberal Party launched policy discussions Wednesday, and while the two took several steps toward forming a coalition, a major hurdle remains — consensus on a consumption tax cut.

The Liberal Party is pushing hard for a cut, and some in the LDP, desperate to alleviate the ruling party’s minority standing in the Upper House, appear willing to use it as a bargaining chip.

But for now, the two sides are bridging other issues. During a meeting in the morning, LDP Secretary General Yoshiro Mori and Liberal Party Secretary General Takeshi Noda agreed that the two parties will continue to hold close discussions and seek common ground on key policies.

They also agreed that Prime Minister Keizo Obuchi and Liberal Party leader Ichiro Ozawa will sit down together after Obuchi’s return from Russia late this week.

Later in the day, LDP deputy policy chief Yuya Niwa and the Liberal Party’s Hirohisa Fujii and Yoshio Suzuki agreed that the two sides would quickly approve bills concerning Japan-U.S. defense cooperation guidelines.

They also agreed to set up a standing committee in the Diet to discuss possible revisions to the Constitution and to take measures to help medium-size businesses that are suffering from the credit crunch and counter unemployment.

The Liberal Party representatives supported the LDP’s idea of halting a premium increase for pension plans for the time being, then went further and called for dedicating consumption tax revenues to fund welfare programs.

As for the consumption tax cut issue, Niwa and Fujii said it should be dealt with at a higher level. They agreed, however, to continue holding discussions on other policy issues.

If the LDP agrees that the consumption tax should be cut, it is highly possible a coalition government will be formed in the near future.

Some LDP leaders have recently begun pushing for an alliance with the Liberal Party due to the party’s standing in the Upper House.

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