The Telegraph
Since 1st March, 1999
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Japan bid to clean up sick banks
- Economics minister named top financial regulator

Tokyo, Sept 30 (Reuters): Japanese Prime Minister Junichiro Koizumi on Monday tapped his pro-reform economics minister, Heizo Takenaka, to become the government’s top financial regulator in a move that boosted hopes of a banking sector clean-up.

Takenaka, who retained his economics brief in a Cabinet reshuffle, takes over the financial services portfolio from Hakuo Yanagisawa, who had been widely seen as an obstacle to aggressive government action to clean up Japan’s ailing banks.

Takenaka had clashed with Yanagisawa over the latter’s opposition to a controversial infusion of public funds to help banks clean up the massive bad loans that have cluttered their balance sheets for more than a decade, stalling economic growth.

Speaking after his appointment was announced, though, Takenaka took a cautious line.

“A public fund injection would not be a target in itself but one possible result,” he told a brief news conference.

“I would like to look at all available options and think of the best way,” said Takenaka.

Koizumi had been under pressure from anti-reformers in his ruling Liberal Democratic Party (LDP) to make appointments that would boost their clout, but a rise in his popularity ratings to nearly 70 per cent after a recent high-profile North Korean summit had bolstered the Prime Minister’s ability to fend them off.

News of Takenaka’s appointment sparked a rebound in Tokyo share prices, boosted the yen and prompted a fall in government bond prices as investors bet strong reform might now materialise.

“I think that (Takenaka’s appointment) is excellent news for the (equities) market. Of all the Cabinet people, Takenaka has the most aggressive policy on sorting out the banks’ problems,” said Garry Evans, a strategist at HSBC Securities in Tokyo.

Koizumi also reappointed finance minister Masajuro Shiokawa, an octogenarian lawmaker prone to verbal gaffes who has come out in favour of public fund injections if needed, to help banks maintain adequate capital as they write off bad loans.

Speculation that Yanagisawa would be replaced had been followed by talk of a deal that would let him stay, so Koizumi’s decision to hand Takenaka the post seemed a bolt from the blue.

“I think it’s a complete victory for reformers,” said Fiachra MacCana, head of research at West LB Securities in Tokyo.

Sceptics still wonder if Takenaka, an academic with no firm political base, can match bold proposals with action.

“It shows Mr Koizumi has a strong will to make changes or to take more proactive action,” said Naoko Nemoto, banking sector analyst at Standard & Poor’s international credit rating agency.

But she added: “I have some concern about (Takenaka’s) leadership, his real ability to make changes.

“He’s not at all supported by the financial community or businessmen, so it’s very challenging,” Nemoto said.

Unanswered questions

Bankers, who say they neither need nor want public money, were clearly not happy to see Takenaka take over.

“I’m terribly disappointed,” said an official at one of Japan’s four megabanks.

“Bankers wanted someone who understood that ending deflation was the priority for solving the bad loan problem, but Takenaka has been calling for public injections, so it’s a double shock.”

Japan’s big banks fear public fund injections would increase government interference and even threaten executives’ jobs.

As financial markets applauded, some experts turned their attention to what happens next—whether, for example, deadbeat debtor firms would be closed down if the government gets tougher on bad loans.

Nonetheless, hopes are high that the hard political decisions will be made. “It’s not going to be easy, but it is clear that they are gearing up to do what needs to be done to solve the problem,” said one Western political analyst.

Economic uncertainty

Japan’s economy, the world’s second largest, has been mired in the doldrums for a decade and industrial production data released on Monday underscored the uncertain outlook.

The government said industrial output rose 1.6 per cent in August from July, but that was well below a consensus forecast of a 3.0 per cent rise in a Reuters poll of 18 economists.

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