Business leaders on Friday called on the government to promptly carry out tax reforms and take other steps to bolster economic activity after the latest key data confirmed that Japan is in a dire recession.

Takashi Imai, chairman of the Federation of Economic Organizations (Keidanren), urged the government to implement tax reforms, including a cut in the gift tax and breaks to promote research and development.

"No optimism remains as sluggishness in capital spending and personal consumption will be unavoidable for some time," Imai said.

Imai made the comments following the government's announcement that the economy, measured in terms of gross domestic product, contracted a real 1.2 percent in the October-December term from the previous quarter for the third straight quarter of decline.

With the economy also shrinking 1.2 percent in nominal terms, Hiroshi Okuda, chairman of the Japan Federation of Employers Associations (Nikkeiren), stressed the need to implement effective antideflation measures as "the drop in nominal economic growth indicates a deepening of deflation."

Yotaro Kobayashi, chairman of the Japan Association of Corporate Executives (Keizai Doyukai), said deregulation and tax system reforms designed to increase domestic demand are needed, while Chairman Nobuo Yamaguchi of the Japan Chamber of Commerce and Industry called for tax cuts and additional fiscal spending.

New steps welcomed

Top government spokesman Yasuo Fukuda on Friday welcomed the ruling coalition's decision to map out a fresh set of proposals to alleviate deflation following the release of weak gross domestic product data for the October-December term.

"The government will welcome such concrete plans" as followup measures to a package aimed at fighting deflation unveiled by the government on Feb. 27, the chief Cabinet secretary told a news conference.

But he noted, "The government is not ready to set a clear schedule" for possible additional measures to curb deflation, and will decide on them by closely monitoring the economic situation.

Earlier Friday, Taro Aso, chairman of the Liberal Democratic Party's Policy Research Council, and his New Komeito counterpart Kazuo Kitagawa agreed to present the proposals to the government later this month.

At a separate news conference, Aso blasted the antideflation package as lacking stimulus measures to rev up the economy, saying the package puts undue emphasis on monetary policy.

The Cabinet Office said Friday the economy contracted a real 1.2 percent, or an annualized 4.5 percent, in the October-December period from the previous quarter for the third straight quarter of decline.

LDP Secretary General Taku Yamasaki joined Aso and Kitagawa in calling for fresh steps to tackle deflation to complement last month's package.

"We'd like to get the economy out of recession and stop deflation" by devising second and third phases for our deflation-fighting plan, he said. "It's a fact that Japan is experiencing deflation and GDP data corroborate that fact."

Aso suggested the coalition will not rule out the possibility of compiling a supplementary budget for fiscal 2002 to fund demand-boosting measures and devising tax measures to bolster slumping personal consumption.

But Yamasaki was reluctant to discuss the proposed compilation of an extra budget while the Diet is still deliberating the regular general-account budget of 81.23 trillion yen for the fiscal year that starts April 1.

The budget cleared the House of Representatives on Wednesday. and is currently on the floor of the House of Councilors.

The LDP-led ruling coalition wants to push it through the Diet by March 25.

"It's unthinkable to discuss something that could contradict the regular budget when the Diet is deliberating it," Yamasaki said.