Alex, I hope you did not sell your extensive beach property in Australia..:)
Japanese banks breakthrough
By Tony Boyd, Tokyo
Japan has finally struck a political deal to rescue its dangerously weak banking system from a collapse that threatened to trigger a global recession and systemic crisis in international capital markets.
If the plan becomes law, a total of ¥57 trillion ($710 billion) in government funds will be available to nationalise banks, buy subordinated debt and common shares in weak banks and to purchase bad loans.
Many details are still to be worked out, but financial markets reacted with euphoria to news of the bank deal, which came soon after the proposals by the Prime Minister, Mr Keizo Obuchi, for a new fiscal stimulus package to revive Japan's moribund economy.
The yen was sharply higher against the $US, which tumbled more than ¥8 yesterday to be trading about ¥124.50 last night.
Tokyo's benchmark Nikkei 225 index also surged, jumping 803.97 points, or 6.17 per cent, to 13,825 – its biggest gain this year.
The surging yen also helped the Australian dollar stage a remarkable rally, soaring to a two-month high in early European trading last night.
The $A gained more than US2.5¢ to be trading about US62.10¢. It ended local trading at US60.58¢, compared with US58.55¢ previously.
Banking stocks led the Tokyo market surge – especially weak banks said to be facing capital shortages because of problem loans and unrealised stock losses – with Fuji Bank and Sakura Bank both rising about 20 per cent.
The only exception to the buying spree was the Long-Term Credit Bank of Japan, which will be nationalised and broken up.
"This plan will ease the tension in the global financial market and I think it is the outcome desired by the United States," said Mr Susumu Kato, the chief economist at Barclays Capital.
"Everything changed after the G7 meeting and suddenly Japanese politicians started to think in terms of crisis management."
A two-month political deadlock over the bank rescue was broken late on Tuesday night when the ruling Liberal Democratic Party struck a deal with the New Peace Party and Social Democratic Party in Japan's Upper House.
In teaming up with the two Opposition parties, the LDP was able to bypass the Democratic Party of Japan which had demanded greater disclosure of problem loans, tough new loan loss reserves for risky second category loans and market valuation accounting of stock losses.
All these tough provisions have been set aside.
The Democratic Party leader, Mr Naoto Kan, and the Opposition Liberal Party leader, Mr Ichiro Ozawa, said they would vote against the new law.
The Democrats had demanded that only banks which failed to meet the minimum international Capital Adequacy Ratio of 8 per cent should be able to get government funding. But under the LDP's latest plan, any bank that has a capital adequacy ratio higher than zero will be able to apply for government funding in the form of shares or subordinated debt.
A total of ¥10 trillion will be set aside for this purpose.
A bank with more than 8 per cent capital adequacy will be able to access this pool of government money on three conditions:
•If it is about to take over a failed lender as part of a rescue or merger.
•If it needs fresh capital to deal with its own restructuring.
•If it requires funds because of a general lack of liquidity or to avoid a deflationary spiral caused by a credit crunch.
A further ¥30 trillion will be available to either nationalise banks or buy common shares in "extremely under-capitalised" banks.
• New rules, slow progress
• $A rallies as Europe's rates fall
afr.com.au
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