Nakagawa Says Japan May Inject Public Money Into Local Banks
Japanese Finance Minister Shoichi Nakagawa said the government may inject public money should the global credit turmoil threaten the nation's financial institutions.
“Japan started considering public fund injections just in case something happens,'' Nakagawa said in a joint briefing with Bank of Japan Governor Masaaki Shirakawa after the two met with Group of Seven counterparts in Washington today.
The global credit crisis wiped out more than $670 billion in market value from the Tokyo Stock Exchange's first section this week, depleting corporate capital and raising concern that Japan's financial institutions aren't immune from collapse. Yamato Life Insurance Co. yesterday became the first Japanese insurer in seven years to file for bankruptcy, citing a decline in the value of its securities holdings.
Nakagawa made the remarks after the G-7 issued a statement saying the member nations will “use all available tools'' to prevent the failure of financial institutions and ensure they can “raise capital from public as well as private sources.''
Nakagawa, also financial services minister, said yesterday he may revive a law that allows the government to pump public funds into regional lenders. The legislation expired in March.
Damage Limited
He and Shirakawa said the effect of the global financial crisis on Japan has been limited relative to the U.S. and Europe, where banks are shunning lending to each other for fear they will lose the money or because they need it themselves.
Japanese banks have largely recovered from the malaise of the 1990s, when the collapse of stock- and property-market bubbles left lenders with trillions of yen in bad loans. Economic and Fiscal Policy Minister Kaoru Yosano said yesterday that the banking sector hasn't weakened to the point where the law needs to be revived.
“Banks aren't in such bad shape that they require public- fund injections at this point,'' Yosano said, hours after Yamato announced it would file for bankruptcy.
Japan poured 12.4 trillion yen ($123 billion) into the nation's banks between 1998 and 2003, forcing mergers that cut the number of nationwide lenders to seven from more than 20. More than 9 trillion yen has already been repaid with the government generating a return in excess of 10 percent.
Nakagawa said he told the meeting that Japan is ready to contribute money to the International Monetary Fund's emergency lending program to help countries that could face financial difficulties as a result of the crisis.
Currency Moves
He also said the G-7 officials discussed the recent sharp movements in currencies at the meeting.
“We shared the view that excessive, disorderly movements in currencies aren't good,'' he said.
The yen posted its biggest weekly gain in a decade against the dollar as the global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan. Japan's currency surged 10.8 percent against the euro and 5.4 percent versus the dollar this month, eroding exporters' repatriated profits and making their products less competitive.