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Friday, 25 October, 2002, 05:56 GMT 06:56 UK
Date set for Japan clean-up plan
Financial Services and Economics Minister Heizo Takenaka
Nailbiting times for Heizo Takenaka...
Japan's government said it would unveil next week a long-awaited plan to fight deflation and eliminate bank bad debts.

Investors forecast that the scheme, being unveiled on Wednesday, would prove more lenient than the tough prescription proposed by Financial Services Minister Heizo Takenaka - who favours the scorched-earth approach to the banking crisis.

"There is likely to be a concession given fierce opposition from ruling party lawmakers and top banks' recent warnings of a serious credit crunch," said Tetsuya Ishijima, senior investment strategist at Okasan Securities.

Japanese media warned that banks might launch legal action if the reform package proved too unpalatable.

Tokyo shares ended 1.3% higher, with shares in banks among the gainers.

Bank suspicions

Mr Takenaka still insists that his plan will not be watered down, despite fears over their impact.

He would stiffen rules on how much capital banks have to carry, a measure likely to prompt bankruptcies among heavily indebted borrowers.

Mr Takenaka will meet bank chiefs later on Friday, in an attempt to get them onside.

Bank bosses, likely to find their jobs threatened by a wholesale sector shake-up, have resisted previous overtures.

Political fears

A hardcore approach to the bank crisis could also have political implications, if bankruptcies led to job losses.

Mr Takenaka's package has been delayed once, largely thanks to heavy lobbying of Prime Minister Junichiro Koizumi by worried members of his Liberal Democratic Party.

Having been in power for all but a couple of the past 50 years, LDP politicians have influential power bases in industries such as construction and real estate likely to be hit by a rigorous bad debt package.

Partly because of this pressure, Mr Koizumi has so far resisted declaring a state of economic emergency, without which public funds cannot be injected into the banking system.

Bank debts are officially estimated at 50 trillion yen, but unofficially feared to be three or four times higher.


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