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Takenaka pushes reform plan
TOKYO, Japan -- Financial Services Minister Heizo Takenaka met with top bankers on Monday, to explain his position on the bad-loan situation. But Takenaka, who is also economics minister, was expected to encounter strong opposition to his proposals. The administration of Prime Minister Junichiro Koizumi is due to deliver Takenaka's report on the banks on Wednesday, at the same time it unveils a package to combat deflation. Banking industry executives on Friday issued a statement opposing Takenaka's plan, which would push banks to change their accounting and the way they assess their assets. For instance, the plan calls for restricting the amount of deferred-tax assets that banks can claim to 10 percent of their capital, down from around 40 percent now. That could push their capital reserves below the 8 percent limit required to do international banking. It would make an infusion of public money highly likely, and could lead to the nationalization of the weakest banks. The plan also calls for banks to split out their bad loans from their good ones and sell the nonperforming portion to the Resolution and Collection Corp., according to the Asahi Shimbun. Koizumi expects coordination on planTakenaka was due to deliver his report last week. But it was delayed amid heavy criticism from Liberal Democratic Party politicians. They fear a hard line on the banks will lead to a credit crunch, causing more bankruptcies and a higher jobless rate. That in turn would worsen the deflation plaguing Japan.
Koizumi said on Sunday that he is looking for support from his coalition for Takenaka's plan, which aims to force banks to tackle bad loans of more than $400 billion. "I expect coordination with the ruling parties to make progress based on Minister Takenaka's plans," he said at the conclusion of the Asia Pacific Economic Cooperation meeting in Mexico. Koizumi reiterated his motto of "No growth without structural reform." There is some suggestion that the bank plan will be amended before it is released to make it more acceptable to the banks. Matsui: Not a long-term solutionGoldman Sachs chief Japan strategist Kathy Matsui told CNN on Monday that the adoption of Takenaka's banking reform proposal "as is" would lead to considerable economic pain. She expects the plan to be watered down. Local media have reported the change in the deferred-tax calculations may not be included in the final version. In any case, Matsui does not believe the proposal is a long-term solution to Japan's economic woes. "The underlying problems of excess capacity and persistent deflation will not disappear," she said. Retail sales fell 3.0 percent in September, the government reported Monday. That's the 18th month in a row of decline. (Full story) "Overall retail sales remained sluggish," J.P. Morgan economist Ryo Hino wrote, with deflation and sluggish consumer demand hurting stores. Bank stocks have sold off hard on the likelihood of a tougher stance from the government. They are down again on Monday, with Mizuho Holdings off 2.45 percent at 159,000 yen at lunch. UFJ Holdings, seen as the weakest of the Big Four banks, is down 2.53 percent at 154,000 yen on a day the Nikkei average is down 1.46 percent.
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