Fund injection for Japan's banks rejected

Reuters, Tokyo

Japanese Financial Services Minister Hakuo Yanagisawa on Friday stepped up his rhetoric against injecting public funds into banks, saying it would go against the government's aim of achieving an economic recovery led by the private sector.

Yanagisawa has repeatedly voiced his opposition against injecting taxpayers' money into banks, but his argument had been that they already had sufficient capital and that no financial crisis was imminent to warrant it.

His comment on Friday, however, indicated that he was fundamentally against the idea because it would entail too much government involvement.

"There are two reasons why we say we're not going to inject (public) funds. One is that there is no need at the moment. Secondly, personally speaking, I really want to avoid public fund injection as much as possible," Yanagisawa said.

"If we do that, it means that we are putting banks under state control," he told the Lower House of parliament's budget committee. He did not elaborate.

The government has spent nearly 9.0 trillion yen (US$74.72 billion) since 1999 trying to resuscitate the ailing banking system by injecting public money into most major banks.

But the infusions failed to pull banks out of their dire state, with the amount of bad loans still at alarming levels against the backdrop of rising bankruptcies and stubborn falls in asset prices.

Many prominent economists have urged the administration of Prime Minister Junichiro Koizumi to speed up the process of bad- loan disposals even if that meant more use of public funds.

Core bad loans at major banks totaled 19 trillion yen at the end of March, but financial institutions, including credit cooperatives, estimate they have 151 trillion yen more in loans to companies whose financial condition requires close attention.