Japan bank rescue 'impossible'

The comments from Hiroshi Okuda, head of the Keidanren, or Japan Employers' Federation, reflect increasing concern that the banks' bad debts exceed even the 50 trillion yen estimated by the government.

"The government said it is going to dispose of all of the problem companies or halve the amount of non-performing loans by the end of March 2005, but that is impossible," Mr Okuda told the weekly Shukan Diamond magazine.

Mr Okuda was quoted as saying that Japanese Prime Minister Junichiro Koizumi "should not promise what he can't deliver."

The hangover of debt from the free-spending 1980s is stopping Japanese banks from lending to companies and individuals, which in turn slows investment and spending and suffocates the economy.

Interplay

The Keidanren is a key player not only in the private sector, but in government too.

Keidanren members sit on dozens of specialist committees and working groups, preparing policy options side by side with civil servants.

That has not stopped Mr Okuda, who is also chairman of Toyota, Japan's largest motor company, from speaking out in the past.

In November, he was quoted by the UK's Times newspaper as warning that at least one bank would have to be nationalised as a result of the government's reforms.

The comments triggered a massive selloff of banking stocks.

He later denied saying any such thing, but the paper went on to publish a full transcript of his interview proving it had quoted him accurately.

Rethink

In this case, though, Mr Okuda has gone even further.

His criticism implicitly calls into question the value of the Japanese Financial Services Agency's ongoing and supposedly tougher assessment of collateral and loans, to determine just how much capital the banks really have.

Most analysts believe that any serious attack on the bad debts - which the government estimates at about 50 trillion yen, but many fear are three or four times worse - will see many companies go bust.

That, Mr Okuda said, was not good enough, since the government would effectively have the power of life or death over who survived and who collapsed.

"Rather, I think two or three of the largest (troubled) companies should be disposed of, as an example, and after that more time should be taken," he told Diamond.