Treasury official backs Takenaka’s policies

A senior U.S. Treasury official threw strong support Tuesday behind Financial Services Minister Heizo Takenaka’s drive to clean up the nonperforming loans weighing down the nation’s banks.

But John Taylor, undersecretary for international affairs at the Treasury Department, also said Japan should be swift in disposing of the bad loans, and that it should keep the money supply strong to combat deflationary pressures from the cleanup.

“Minister Takenaka, I understand, has established some principles for dealing with nonperforming loans,” Taylor said at the Japan National Press Club.

“I agree very much with these principles. They make sense, and we’re supportive of those.”

Takenaka’s principles are to accurately classify banks’ bad loans, examine whether they have adequate capital and whether they are appropriately exerting corporate governance.

The comments come at a time when a task force under Takenaka is set to release an interim report on ways to promote the disposal of nonperforming loans.

Taylor warned that the longer Japan drags its feet in dealing with the bad-loan problem, the longer and greater the pain will be.

“I feel that the more that there is a postponement of the effort, the longer it would delay the benefits and the larger the costs will be,” he said.

He said that the key for Japan to achieve growth is to end deflation, and that the Bank of Japan should maintain a steady growth rate in money supply to keep the monetary base strong.

“The efforts of the Bank of Japan to raise monetary base are in the right direction for ending the deflation, but they need to be continued,” he said.