TOKYO A package of tax cuts to spur economic growth in Japan must be substantial to be effective, even if this risks widening the government's budget deficit, Finance Minister Masajuro Shiokawa said Tuesday.

Prime Minister Junichiro Koizumi and his ruling coalition leaders agreed Monday to implement modest tax cuts aimed at boosting business and investment.

"I think the tax cuts should not be small as this would not generate the hoped-for effects," Shiokawa told a regular news conference.

"The cuts will be covered by savings from reduced spending to maintain fiscal neutrality, but a little deficit can be carried over," he said.

"If companies apply for tax-cut incentives and the total reaches several hundreds of billions of yen (several billions of dollars), the economy will surely be revitalized and this will help the government increase revenue to cover the tax cuts." The government plans to offer tax breaks from January next year for research and development and technology-related capital spending, as well as reviewing inheritance and gift taxes, AFP reported.

The coalition leaders said they would also review corporate tax and present their findings as soon as possible.

But economists warned tax cuts alone may not be enough to lift the world's second largest economy from a decade-long slump.

If the cuts were substantial, Koizumi might be forced to backtrack on a pledge to limit the issuance of new government bonds in order to fund the deficit but smaller, more affordable cuts would be ineffective, they said.

Shiokawa said the details of the tax cuts would be released at the end of August or early September.

JAPAN WELCOMES U.S. ADDITIONS TO STEEL TARIFF EXEMPTIONS In another AFP report, Japan welcomed Tuesday a U.S. announcement of further exemptions to its controversial steel tariffs but wants Washington to go further.

The United States on Monday announced it would exempt 47 more steel products from recently introduced hefty tariffs of up to 30 percent.

The newly announced items include at least nine Japanese products, amounting to 20,000 tons of exports to the U.S. annually, a Japanese Trade Ministry official said.

"We appreciate the U.S. move as the 20,000 tons include items of primary concern for the Japanese industry," Economy, Trade and Industry Minister Takeo Hiranuma told a press conference.

Hiranuma added Tokyo also wanted Washington to make "a fair judgement" on the treatment of other Japanese steel exports.

In March, U.S. President George W. Bush announced he was applying tariffs of up to 30 percent on most steel imports to protect the ailing U.S. steel industry, prompting Tokyo and other countries to lodge complaints with the World Trade Organization.