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To: VICTORIA GATE, MD who wrote (71160)	10/9/1998 6:20:00 PM
From: D.J.Smyth	Respond to of 176387

(ot for LT from Friday evening Japan newspapers) 16:19 DJS With Yen Up, Stocks Down, Japan's Central Bank May Ease Credit Ag 16:19 DJS With Yen Up, Stocks Down, Japan's Central Bank May Ease Credit Again TOKYO -(Dow Jones)- The yen's surge against the dollar this past week, coupled with the decline in Japanese stocks, is fueling sentiment within the Bank of Japan that an additional easing of monetary policy is needed, Japan's leading business journal reported in Saturday morning's edition. The Nihon Keizai Shimbun noted that the yen's rapid strengthening hurts exporters by eroding their competitiveness and increases deflationary pressures by making imports cheaper. The currency's recent movement has thus deepened fears that the Japanese economy will deflate. At its Oct. 13 meeting, the central bank's policy board is expected to discuss ways to ease monetary policy using an expanded arsenal of tools, the newspaper said. Ever since the Bank of Japan guided interest rates lower in September, the yen has surged against the dollar, to the detriment of Japanese companies. Additionally, instability in the nation's financial system has made it difficult for banks to procure funds. Possible methods for easing credit include increasing purchases of government bonds or using the new tool of purchasing corporate bonds or commercial paper. Another such tool, mentioned at a Sept. 11 press conference by central-bank Governor Masaru Hayami, would be a lowering of reserve requirements for banks. And one of the Bank of Japan's executive directors, Yasuo Goto, said Thursday that "we could move the official discount rate, which was left unchanged in September, or reduce the reserve-requirement ratio." The paper also quoted sources who said that Japan's ruling Liberal Democratic Party is planning to expand a pool of public funds for the nation's ailing financial system to at least 30 trillion yen ($257 billion), alongside the 17 trillion already allocated for the protection of depositors. Under the LDP's bank-recapitalization bill submitted to the Diet, only 10 trillion yen in public funds have been earmarked for fiscal 1998 for injection into financial institutions in need of fresh capital. But the government and LDP now want to set aside at least an additional 20 trillion yen in the fiscal 1998 second supplementary budget, the newspaper reported. The move is intended to prevent a credit contraction by financial institutions, the paper added. Meanwhile, the logjam in Japan's parliament over bank-bailout legislation continued Friday, but an end-run involving some smaller opposition parties was viewed as offering hope for a breakthrough. Japan's largest opposition party - the Democratic Party of Japan, or DPJ - said Friday it would hammer out a new proposal on changes to a bill put forward by the ruling Liberal Democratic Party to pump capital into the nation's banking system. But any new proposal from the DJP may be irrelevant because a smaller group - the Heiwa Kaikaku alliance - has given its own suggested changes to the LDP. If the LDP accepts most of those ideas, the bill will be a done deal. "Even if there are some points lacking, if the bill is the first step in the same direction we're moving in, then we could praise it," the Heiwa-Kaikaku policy chief, Chikara Sakaguchi, said Friday evening. LDP acceptance of all or most of the seven suggestions made by Heiwa-Kaikaku would break a logjam preventing the passage of the law that aims to resolve of the country's credit crunch. The bill includes provisions to inject public funds into any bank that applies for money - provided the institution submits itself to certain conditions. Even banks with capital adequacy ratios exceeding 8% would be eligible. The theory is that such banks would be more willing to lend funds to businesses if they knew there were fresh funds available to replace depleted capital from writing off bad debts. But there's no deal on the bill yet. "Without those (seven) items, the bill won't pass," Sakaguchi said. The ruling party has a majority in the lower parliamentary chamber but lacks a majority in the upper house, the Diet. The amendments proposed by the Heiwa-Kaikaku group include adding specific conditions under which banks with greater than 8% capital-adequacy ratios can receive cash injections. This would replace the catch-all condition "to maintain financial system stability" that the LDP had in its original bill. If the amendment is accepted, banks with high capital adequacy would only be able to receive extra cash if they took over failed institutions or if they suffered a sharp decline in capital adequacy. Additionally, the LDP must draw up a medium- to long-term blueprint for Japan's financial system, Sakaguchi said, and if his group agrees with it, they then could support the bill. Also, the date must be set for when the evaluation method for banks' securities will be changed to market value, or the lower of market or book value, he said. Guidelines for loan-loss reserves must also be clarified, Sakaguchi said. Strict rules must be written up for the evaluation of bank assets and institutions must report them to the new commission that will oversee the financial sector, along with severe penalties for falsifying reports, he said. The government-guaranteed fund that will supply money for the capital infusions also must be split from the Deposit Insurance Corporation, which will already have an account to deal with failed banks, he added. Copyright (c) 1998 Dow Jones & Company, Inc. All Rights Reserved. 10/09 4:19p CDT