Japan Passes Stimulus Plan to Curb Yen : Tokyo: Bank of Japan lowers discount rate to record 1%. Actions are aimed at warding off threat to fledgling recovery.

The Japanese government today approved an economic stimulus package, while the Bank of Japan lowered its official discount rate by 0.75 percentage point to a record low of 1%.

Both the stimulus package and the interest rate cut were coordinated and are aimed at coping with the yen’s sharp appreciation against the dollar and a resulting threat to Japan’s fledgling economic recovery. The yen has appreciated about 17% since Jan. 1.

The government portrayed the package as a major step toward coping with yen appreciation and trimming Japan’s massive trade surpluses. Japan’s surplus with the United States, which hit $65.7 billion last year, is a key factor in the yen’s strength against the dollar.

Prime Minister Tomiichi Murayama told a meeting of economic ministers that he expects the package to boost the economy’s recovery.

“I hope that the package is good enough to secure recovery and sustain Japan’s medium- to long-term growth,” he said.

But the news had no dramatic effect on stocks or exchange rates. The 225-share Nikkei index dropped 136.65 points, or 0.8%, to end morning trading at 16,302.14. The dollar fluctuated in the range of 83 yen.

After the government said Monday that it would prepare a plan to cope with yen appreciation, both stock prices and the dollar had responded positively, strengthening to about their current levels. The package announced today contained no surprises and was too weak to produce any quick results, analysts said.

The package document says Japan is “strongly determined” to reduce its huge current account surplus “substantially” and that the government will carry out within three years a deregulation plan earlier set to be implemented over a five-year period. Current account includes all trade--imports and exports--between Japan and other countries.

Among the measures included in the package are calls for more active import of foreign housing construction materials, lowering of public utility rates to reflect the reduced cost of oil imports due to yen appreciation, and more active efforts by banks to write off bad loans over the next five years.

It also promises increased fiscal stimulus through government spending financed by deficit-covering bonds, and support for small and medium-sized businesses.

The package also calls for promotion of the yen as an international currency. Until now, Japan has conducted most of its trade with dollar-based contracts, but there have been growing calls from business leaders and government officials for more contracts to be priced in yen.

Approval of the package came after all-night talks by senior government officials and Japan’s three ruling parties to thrash out the details. The ruling coalition considered, but ultimately rejected, setting a specific goal of cutting Japan’s trade surplus in half over five years.

Finance Minister Masayoshi Takemura said that while the package “shows our will to take more drastic action,” the government should be cautious about setting specific targets in a free-market economy.

Meanwhile, the reduction in the discount rate--what the central bank charges on short-term loans to commercial banks--is the first of its kind since Sept. 21, 1993, when the rate was cut to 1.75%. Bank of Japan Gov. Yasuo Matsushita announced the interest rate cut after an extraordinary meeting of the bank’s policy board.