Koizumi unveils recue plan


Koizumi says the package is no "panacea" and can't save Japan right away

Staff and wires

TOKYO, Japan -- The Japanese government has unveiled its long-awaited economic rescue plan amid general disappointment that it does not confront the problems in the banking industry.

Prime Minister Junichiro Koizumi says the government will put money into the banks only in the event of a financial crisis.

Investors had been hoping he would announce an immediate injection of funds.

The contents of the so-called anti deflation plan were leaked on Tuesday and the official announcement held few surprises.

Koizumi is hoping the program will rekindle growth, end deflation and haul the Japanese economy out of its third recession in a decade.

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His plan targets what he believes are the key obstacles blocking recovery: wiping out bad debt, shoring up the stock market, boosting credit to small businesses and encouraging consumer spending.

Prices have been spiraling lower for more than two years, undermining corporate profits, slashing property values and increasing debt.

However, reversing the decline in prices is unlikely to be easy after a slump that has lasted more than a decade.

Debt burden

For Japanese consumers falling prices have slashed the value of homes and increased the interest burden on debts.

On top of that plummeting prices have also hit large-scale purchases such as such as cars or property, because consumers know the price will fall in the future.


Investors have been disappointed Japan's banks aren't getting an infusion of government cash -- yet

The impact on corporate Japan is even worse with falling prices pushing down the value of factories, the land firms use as collateral and the value their stocks.

The rescue plan will urge the central bank to loosen monetary policy and authorize the government's loan-buying agency to speed up its purchases of bad loans from banks.

Japanese banks are straining under the weight of some $323 billion in bad debts and the government is urging banks to challenge their worst debtors to either restructure or face bankruptcy.

Another key measure announced involves tightening regulations on short-selling.

Short-selling is when investors sell stocks they do not already own, on the expectation that the share price will fall.

Earlier in trading Wednesday Tokyo stocks soared -- but not on hopes for the economic bailout plan.

Instead, it was expectations of the new rules on short-selling.

Banks have been a target for short-selling and investors scurried to buy back the stocks before the rules are introduced.