Japan rules out bad loans action before mid-July
By Yoko Kobayashi
TOKYO, June 21 (Reuters) - Japan, under world scrutiny over how fast it can take measures to repair its economy, on Sunday ruled out specific action on solving the core problem of bad bank loans until after national elections next month.
While the nation nervously awaited the opening of financial markets on Monday for a first judgement on a weekend G7 and Asian gathering in Tokyo, Finance Minister Hikaru Matsunaga said deliberations on the loans issue would start this week.
But, in an interview with national broadcaster NHK, he added: ''We hope to wrap up our discussion around the middle of next month.''
The timeframe would mean no concrete action was possible until after July 12 Upper House elections at the earliest, adding to fears that electoral considerations would hold the Japanese government back from any immediate dramatic action.
Traders say how swiftly and boldly Japan acts in the days ahead are the key issues in deciding the rise and fall of the country's currency and stock markets.
''Whether the hopes (for fresh action) can keep the Nikkei 225 from falling back totally depends on whether the government can restore investor confidence by actually solving the problems of the economy and of the financial sector,'' said Keiko Kondo, a strategist at Merrill Lynch Japan Inc.
Ichiro Ikeda, director of foreign exchange at Credit Suisse First Boston, agreed :''The development of Japanese steps (to solve Japan's economic problems) will be the key to currency markets over the next month,'' he said.
Japanese newspapers joined in the global chorus for action, with an editorial in the financial daily Nihon Keizai Shimbun saying Japan held the fate of the world economy in its hands.
''Unless the government of Prime Minister Ryutaro Hashimoto takes action quickly to cure the country's deep-rooted economic maladies, the weak yen will have devastating consequences on economies both in Asia and the West,'' the editorial said.
The mass circulation Yomiuri Shimbun said talk was no longer enough to solve Japan's problems.
''The (G7) meeting is over. Japan must now take meaningful steps to fulfill its pledges,'' the Yomiuri said.
A statement at the end of Saturday's meeting of officials from Group of Seven and Asian neighbours welcomed Japanese announcements on policy steps, but ''emphasised the importance of concrete action to implement these plans quickly.''
''It is of vital importance to Japan, to the recovery of Asia, particularly those countries affected by financial market turbulence, and to the entire world economy, that Japan restore its banking system to health, achieve domestic demand-led growth, (and) open and deregulate its markets,'' it said.
U.S. Deputy Treasury Secretary Lawrence Summers told a news conference after the meeting that last week's joint Japan-U.S. intervention in currency markets gave Tokyo a ''window of opportunity'' to act on its failing economy.
But he warned the world would be watching for signs of quick and effective reform progress by Japan.
On the future of the yen, Matsunaga said stability of the currency was paramount.
''Stability is important. We must absolutely avoid wild fluctuations having a bad impact on the Japanese economy and other Asian currencies,'' he said.
In an Upper House election campaign speech on Sunday, Prime Minister Ryutaro Hashimoto revealed he would hold talks about the loans problems on Monday with Koichi Kato, secretary general of his ruling Liberal Democratic Party (LDP).
Hashimoto signalled a key part of cleaning up the bad loans mess, involving an estimated 100 trillion yen ($729 billion), would be creation of a so-called ''bridge bank'' that would provide loans to sound borrowers if their banks fail.
It would resemble a bank which the United States set up in the 1980's to clean up its own bad loans crisis.
''It is very crucial to ensure that good-will creditors will not be put in trouble even when upcoming measures to dispose of the bad loans are being implemented,'' Hashimoto was quoted by Kyodo news agency as saying in Okazaki, central Japan.
Matsunaga said action on problem loans that do not require new legislation will be immediately applied while those that need fresh legislation will be debated in the next parliament session starting at the end of July,
He stressed financial institutions needed to make their own efforts to strengthen their businesses.
Matsunaga vowed the government would do its part by making sure banks disclose the extent of their problems and allowing market forces to decide the future of banks. |
