The leaders of Japan’s three most powerful business groups said Monday that the uncertainty over Japan’s economy is increasing this year due to the possibility of a U.S.-led war against Iraq, and predicted that annual economic growth will be between zero and nearly 1 percent.

They also said the government should take appropriate measures to spread a safety net to support healthy small and medium-size companies and unemployed people when banks are accelerating bad-loan disposal.

Hiroshi Okuda, chairman of the Japan Business Federation (Nippon Keidanren), said the war could have a negative impact on the global economy.

“Even if the war ends within 10 to 15 days, I wouldn’t be optimistic (about a quick U.S. economic recovery) because concerns over terrorism will continue to linger for a while,” he said. “If it (the war) continues for a longer term, that would greatly shake Japan and the U.S.”

As other key factors affecting the domestic economy, Yotaro Kobayashi, chairman of the Japan Association of Corporate Executives (Keizai Doyukai), pointed to the disposal of bad loans and the restructuring of companies and industries, which are being carried out under the government’s comprehensive economic package.

“As these moves progress steadily, the structural reform of the nation’s financial system would be promoted and banks could improve their management,” he said, forecasting an annual gross domestic product growth of between 0.5 percent and slightly less than 1 percent.

Nobuo Yamaguchi, chairman of the Japan Chamber of Commerce and Industry, said the government should take measures to stop deflation at the same time it is promoting bad-loan disposal.

“Continuing deflation means an increase of bad loans . . . which would damage corporate management,” he said, noting that the government should do something to stimulate consumer spending to end deflation.

Yamaguchi predicted that the benchmark 225-issue Nikkei average would stay between 8,000 and 9,000 this year.

The three leaders also said that a sustainable social security system should be established by raising the consumption tax from 5 percent at present to more than 10 percent in the long run.

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