Prime Minister Junichiro Koizumi reiterated Tuesday his resolve to avoid a deflationary spiral by compiling a second supplementary budget for fiscal 2001.

The government decided to compile the extra budget "to prevent the economy from deteriorating with increasing speed along with continuing deflation," Koizumi said at a plenary session of the House of Representatives.

He said Japan's economy had deteriorated further amid growing risks of a global recession since the Sept. 11 terrorist attacks in the United States.

Koizumi made the remarks in response to questions by Masamitsu Jojima of the main opposition Democratic Party of Japan at the session to debate the supplementary budget.

To Jojima's claim that the extra budget simply makes up for curtailed outlays for public works projects in the fiscal 2002 state budget, Koizumi responded, "The extra budget is aimed at accelerating structural reforms and preventing (the economy) from falling into a deflationary spiral."

The passage of the 2.5 trillion yen supplementary budget is a top priority for the 150-day ordinary Diet session, which convened Monday.

Koizumi is seeking enactment of the extra budget by the end of January. The budget partly finances a package of emergency economic programs worth 4.1 trillion yen, which was compiled in December.

The supplementary budget will be spent on four so-called priority sectors -- 627.8 billion yen on urban development, 655.8 billion yen on the environment, 872.0 billion yen on science and technology and 344.4 billion yen on the aging society.

The supplementary budget will be funded by the proceeds of the sale of government-held shares in Nippon Telegraph and Telephone Corp., to keep Koizumi's pledge to cap the issuance of new government bonds at 30 trillion yen.

Proceeds from the sale of the NTT shares have been kept in a special account for servicing the national debt.

Line up behind Daiei

Financial Services Minister Hakuo Yanagisawa on Tuesday urged the Land, Infrastructure and Transport Ministry to consider helping banks come up with viable bailout plans for debt-ridden construction firms.

"Just like Daiei's reconstruction plan, if a governing ministry provides information or knowhow to (creditor banks)," Yanagisawa said, "then they may find it easier to work out credible plans (for construction firms)."

Yanagisawa was referring to a 420 billion yen bailout package unveiled Friday by troubled retailer Daiei Inc. The Ministry of Economy, Trade and Industry is believed to have devised the plan in close contact with creditor banks.

His remarks indicate that Daiei's program may prove to be a model for bailing out construction firms, which come under the supervision of the land ministry.

Yanagisawa also said he told visiting U.S. Treasury Secretary Paul O'Neill on Monday that Japan has pushed through plans to accelerate disposals of banks' bad loans.

O'Neill indicated his understanding of Japan's actions, he added.