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Japan delays end to bank guarantees
TOKYO, Japan -- Japan's government will push back by two years the introduction of a cap on government protection for bank deposits. The decision, made Monday, moves the introduction of the cap to April 2005. Postponing the cap gives weaker banks more time to prepare as they tackle their bad loans. It is boosting Japan's battered bank stocks on Tuesday after heavy losses on Monday and last week. The government currently gives a full guarantee on most deposits. But it was due to cap the protection at 10 million yen (about $80,000) per customer next April. That deadline risked destabilizing banks at a time they are being pushed to deal with a raft of bad loans on their books. "In order to accelerate disposals of bad loans and move forward with our reform policy, it is necessary to come up with comprehensive measures to avoid unnecessary worries," Prime Minister Junichiro Koizumi said in announcing the decision. Needed for stabilityEconomics Minister Heizo Takenaka last week took over as financial services minister, replacing Hakuo Yanagisawa, who was seen as too soft on banks. Takenaka has been talking tough on banks since then, appointing a noted hard liner to the task force he has set up. That group is due to make its first report next week. Takenaka said the government was waiting to install the cap on deposits after the bad loan issue was resolved. "While ensuring the stability of the financial system, we will accelerate disposals of bad loans and do our utmost to secure smooth lending to small- and medium-sized firms," Takenaka said in a statement on the cap delay. Both Koizumi and Takenaka said the decision to postpone the cap on deposits is not a change in policy and reflects their commitment to speeding up bad-loan disposals. "There is no change in our policy of no growth without reforms," Koizumi said. Stocks moving higherProponents of a delay in scrapping government guarantees feared that the cap would cause depositors to pull out of the weakest banks, destabilizing them. The government is also preparing a package of measures to fight deflation and expects to deliver a guideline to its plans in the middle of October. (Full story) Declining prices, wages and a depressed stock market have all hurt Japan's ability to extricate itself from recession. There are signs Japan's export-led recovery is giving way. (Full story) Japanese stocks sold off on Monday as investors factored in a tougher tack on problem borrowers. Debt-burdened retailer Daiei Inc. topped the losses with a 30 percent plunge to 87 yen. (Full roundup) The Big Four banks also plummeted, UFJ Holdings falling almost 12 percent to a record low. But the banks are showing a little strength on Tuesday, UFJ Holdings broke for lunch up 2.6 percent at 197,000 yen. Mizuho Holdings ending the morning up 2.04 percent at 200,000 yen. Mitsubishi Tokyo Financial Group rose 1.79 percent to 795,000 yen and Sumitomo Mitsui has put on 1.56 percent to 522 yen. That has boosted Japan's broader market, with the Nikkei rising 0.5 percent and the Topix gaining 0.15 percent during the session.
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