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Thursday, 31 October, 2002, 07:53 GMT
Disdain greets Japan reform plan
A woman in front of a stock board in Tokyo
Markets in Tokyo were unimpressed with the package
Japan's plans to revive its stuttering economy and rescue its banks from mountainous bad debts have been met with a chorus of disapproval.

Newspapers, investors and credit ratings agencies have all given the proposals the thumbs down.

There were proposals but no specifics, I wouldn't be surprised if stocks continue to fall

Kazunori Ohtomo, STB Asset Management
The plan was announced on Wednesday, after several delays, by the man installed by Prime Minister Junichiro Koizumi to take radical action.

But the consensus is that the plan has been watered down by political infighting to the point where it may fail to make any serious impact.

Banks up, markets down

The most immediate reaction to the unveiling, which happened after Tokyo's markets closed on Wednesday, was a 1.3% fall on the benchmark Nikkei 225 index.

Banks, paradoxically, saw their shares rise because investors interpreted the government's programme as shying away from tough action which could have slashed banks' assets and cleared the way for an injection of public funds.

But, more generally, the lack of any clear timeframe and the dilution of plans to remove a tax break which has been artificially propping up banking balance sheets for years, was seen as a fudge.

The 1 trillion yen (£5.2bn; $8.2bn) in tax cuts and the banking package, including measures to tighten accounting standards and bolster the finances of the public corporation charged with taking over bad loans, were "a real disappointment", said Kazunori Ohtomo, senior fund manager at STB Asset Management.

"There were proposals but no specifics. I wouldn't be surprised if stocks continue to fall."

'Five wins and a draw'

Needless to say, Heizo Takenaka - financial services and economics minister, and the plan's architect - did not agree.

Financial Services and Economics Minister Heizo Takenaka
Takenaka's plan: watered down after political fight
The final strategy had been subject to some horse-trading, he acknowledged, but had ended up as "five wins and one draw".

The package, he said, was a "good start, considering that this problem has affected Japan for 10 years, and we only spent a month discussing it".

He remains publicly confident that the plan will help dissolve the burden of bad loans built up over years of reckless lending, backed by property which is now worth a fraction of its value at the height of Japan's 1980s bubble.

The official debt figure is 52 trillion yen ($425bn; £272bn), but many analysts believe the real number to be three or four times bigger.

'Watered down'

The credit rating agencies did not share the economy minister¿s confidence.

According to Fitch, the plan was a "damp squib" and made no difference to the bad ratings it attaches to Japan's banking sector.

Moody's called the package "still too vague, even though it was attempting to be bold".

Standard & Poor's, meanwhile, said the package was a "step back" from raised expectations.

"The measures outlined, if they were to be carried through, could have some benefits for the banks' credit quality," it said in a statement.

But noting that repeated good intentions had yet to translate into concrete action, it warned that its ratings will go up only if "the banks radically improve their asset quality".

Nana Otsuki, a director at Standard & Poor's Tokyo, made clear the scepticism about the government's readiness to take real action.

"Whether the government has the political will to fully implement even those measures retained in the watered-down package in the face of hostility from within the Diet and in the financial sector must also now be questioned," she said.

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