A government tax panel agreed Tuesday to cut income taxes next year by about 4 trillion yen ($27.7 billion) for individuals and 2 trillion yen ($13.8 billion) for corporations.
Finance Minister Kiichi Miyazawa said the agreement came in response to international pressure for Japan to boost domestic demand and tackle its economic slump as quickly as possible.
Neighboring Asian nations say Japan's recession is dragging down their efforts to recover from the year-old economic crisis plaguing the region. They hope tax cuts will help by encouraging Japanese consumers and companies to buy more of their products.
Miyazawa said he and the Liberal Democratic Party panel also agreed that Japan's maximum income tax rate should be lowered to 50 percent from the current 65 percent.
He also said there will be "absolutely" no tax increase next year and reiterated that there won't be a limit on the duration of income tax cuts.
The party panel is expected to complete its tax cut plans by the end of 1998.
Earlier Tuesday, Miyazawa and U.S. Treasury Secretary Robert Rubin talked by telephone and agreed to "stay in close contact," a Finance Ministry official said.
Rubin congratulated Miyazawa on his assumption of the finance minister's post, and pointed out that the two leading financial officials have not previously discussed their economic policies fully.
The two also agreed to meet each other as soon as possible, the ministry official added, speaking on condition of anonymity.
The official refused to disclose other details from the conversation.