Japan PM hints at additional economic stimulus

Japanese Prime Minister Naoto Kan on Tuesday said he would consider whether additional steps to boost the economy are needed amid fears Japan's recovery is losing steam.

"The labour situation is still severe and economic conditions overseas have not necessarily stabilised," Kan, who took the leadership less than two months ago, told a budgetary committee of the parliament's lower house.

"We have come to a point where we will have to consider whether taking action in any way is necessary," he said after a lawmaker urged the government to take additional measures to stimulate the economy.

Japan limped out of recession in spring 2009 but its recovery has been fragile, with recent data pointing to signs that export- and stimulus-led recovery may be stalling.

Last week the government said that unemployment had ticked up to 5.3 percent in June, the highest level since November and above market expectations of 5.1 percent.

And industrial output surprised the market by falling 1.5 percent in June from the previous month, missing expectations of a 0.l percent rise as electronics and automobile makers cut back production.

The latest data pose a challenge for Kan's government, which must balance Japan's uncertain economic reality with an agenda that has at its core cutting the industrialised world's biggest public debt.

Fears that Japanese growth could enter a sustained slowdown have been heightened by the looming expiry of subsidies such as tax rebates for households and incentives for purchasing environmentally friendly cars.

Automakers could suffer a backlash when the subsidies for green purchases expire at the end of September, after they were extended in March.

Mazda has predicted its vehicle sales will tumble 30 percent in the second half of the fiscal year from the April-September period.

Kan also renewed discussion of raising the consumption tax, even though similar remarks widely contributed to his Democratic Party's setback in upper house elections last month.

It is a "matter of course" for lawmakers to seriously debate drastic tax reform to cope with ballooning social welfare costs and reduce the country's public debt, which is nearly twice the size of its GDP, he said.

Kan previously raised the possibility of doubling consumption tax from the current five percent.