UPDATE 3-Japan business lobby gives OK to scrap corp tax cut

* OK for govt to scrap planned cut to 40 pct corp tax rate

* Tells firms to shift production to western Japan

(Adds details, analyst’s comments)

By Junko Fujita and James Topham

TOKYO, March 28 (Reuters) – Japan’s top business lobby gave
the government the green light to scrap a planned cut in the
corporate tax rate and urged firms to look at shifting
production to western Japan as the nation grapples with its
worst crisis since World War Two.

Hiromasa Yonekura, chairman of the Japan Business
Federation, said the influential lobby would not fight the
government if it decided to shelve a plan to lower the corporate
tax rate, which at around 40 percent is among the highest in the
industrialised world.

Economics Minister Kaoru Yosano suggested last week the
government should reconsider the planned tax cut of 5 percentage
points from April to prioritise spending on reconstruction and
prevent the country’s already massive debt pile from growing.

“I don’t mind if the government skips cutting the corporate
tax rate,” Yonekura, who is also chairman of Sumitomo Chemical
, told a regular briefing in Tokyo. “Instead I want the

government to move swiftly in its recovery efforts.”

The openness of the business lobby to agree to skip the cut,
may be part of a strategy to receive it in full later, analysts

“I think Japanese corporations would rather make sure they
will get a full five percent cut next year, rather than risk
having to be forced to be content with (partial) cut
indefinitely,” said Takuji Okubo, chief economist at Societe
General in Tokyo.

The government is scrambling to come up with funding for
rebuilding after a 9.0-magnitude earthquake and tsunami stuck
the northeast coast on March 11, causing an estimated $300
billion in damages and crippling a nuclear power plant.

Cutting the corporate tax rate has been seen as key to
boosting the competitiveness of Japanese firms, as well as an
important pro-business gesture by Japan’s Democratic Party.


The disaster in northern Japan knocked out about 20 percent
of Tokyo Electric Power’s operating thermal and nuclear
power generation, prompting rolling blackouts in Tokyo and its
neighbouring prefectures which account for 40 percent of the
country’s gross domestic product.

Power outages have forced many companies to close plants or
run at low capacity, sending ripples through supply chains.

Yonekura said companies may need to shift production to
western Japan, which has not been affected by the quake or
rolling blackouts, and suggested firms work together to conserve
energy and get through the power crunch.

Possible steps include coordinating production times to
reduce usage during peak hours and joint use of power generators
among factories operating in the same region, tactics that some
analysts think may help Japanese firms keep operating during the
summer, when power demand typically peaks.

Okubo said that power saving efforts such as staggered
summer vacations and operating on weekends and at night could be
enough to prevent blackouts.

(Writing by Nathan Layne; Editing by Edmund Klamann and Edwina

UPDATE 3-Japan business lobby gives OK to scrap corp tax cut