Japan not singled out but G-7 still worried

The Asahi Shimbun, Tokyo

Finance ministers and central bank governors of the Group of Seven industrialized nations (G-7) gathered in Ottawa over the weekend. Their joint statement described the effects of the terrorist attacks and demise of dot-com speculation in the United States on the global economy and said that things look bright again, despite some lingering concerns.

The statement made no direct reference to Japan. There was a mild comment about the continued decline in the value of the yen in foreign exchange markets. It did not go beyond saying the finance ministers would be watching the yen's fluctuation.

That is not to say there is less concern that Japan might be a drag on the world economy in its efforts to turn around. The Ottawa statement can be read as an expression of concern by policymakers that referring to Japan specifically might call attention to its economic plight.

We should note that the principal risk referred to in the joint statement seems to be Japan's economy. The fact that the finance ministers and governors tolerate the cheap yen, which creates a burden for Asian nations, should be interpreted as an expression of hope that doing so would benefit the Japanese economy. That interpretation is supported by the fact that the finance ministers who spoke with Masajuro Shiokawa asked him about Japan's economic outlook for the coming months.

The government is already working on a stimulus package to counter deflation, apart from the work done for the G-7 meeting, in anticipation of U.S. President George W. Bush's visit to Japan next week. Prime Minister Junichiro Koizumi's administration is prepared to do everything in its power in terms of monetary policy and revising the tax structure to that end. That could include establishing-ahead of schedule-an entity that would buy up stocks held by banks as part of their past cross-shareholding agreements with corporations not related to banking.

Koizumi must not use gimmicks to shore up his administration's approval ratings, stock prices or other economic indicators. The most important thing is that the administration dedicate itself to eliminating bank bad loans, which have been a decade-long economic illness.

The nonperforming loans that burden financial institutions must be thoroughly checked up first. Then the government should have the banks set aside reserves sufficient to erase the debts or take necessary legal steps to write them off. If banks are put in jeopardy, the government should not hesitate to inject taxpayers' money after determining the responsibility of bank executives.

The government should not let the banks overextend themselves by paying dividends to shareholders from reserves, which would weaken their financial health. If the government acquires shareholder voting rights in banks from having pumped money into them in the past and the banks are effectively nationalized as a result, so be it.

Koizumi himself needs to tell the people plainly and specifically how he intends to dispose of the bad loans. That will be the first step toward calming the public and rebuilding the nation's economy. At the same time, he needs to say how he plans to help the people in daily life, as in creating new jobs.

The Financial Services Agency had promised to use special audits and other measures to resolve the bad loan problem of banks by April, when the government will no longer guarantee the full amount of bank deposits in institutions that fail. But jitters toward the banking sector are far from gone, and public mistrust of financial institutions could spill over to affect the life insurance industry too.

There is not much time left. The government needs to ask itself why the G-7 finance ministers and central bank governors meeting in Ottawa did not mention Japan by name in their joint statement.