Staff writer

OYAMA, Shizuoka Pref. — Japan’s financial industry must be strengthened through realignment, and the government and the financial industry need to cooperate to draw up a vision for the future, the Japan Federation of Economic Organizations (Keidanren) said in an emergency appeal issued Thursday.

Keidanren’s proposal came as Moody’s Investors Service announced that it was considering a downgrade of Japanese government bonds’ Aaa status.

Alarmed by the announcement and hoping to have its policy proposal reflected in the new government to be established next week, the nation’s most powerful business organization adopted the appeal at its annual two-day summer forum, which started Thursday.

In the proposal, Keidanren says that the financial industry must be strengthened to be internationally competitive, and that financial institutions should classify their second-category loans, defined as difficult to collect, into more categories while voluntarily disclosing their financial condition.

It also said that a standing committee comprised of members from the Finance Ministry, the Bank of Japan, Deposit Insurance Corp. and the Financial Supervisory Agency should be established under the finance minister to study ways of preventing systemic risks in the banking industry.

“It would be too late if a particular bank is attacked by the market. … Since the Finance Ministry and the FSA have the necessary data, obtained through careful examinations of individual financial institutions, such a standing committee should be able to act swiftly (before the financial institution faces a real risk),” Keidanren Chairman Takashi Imai said.

In implementing the earlier announced bridge bank scheme, Keidanren said, financial authorities should set a strict, standardized guideline for providing public loans, with the operations of collapsed banks being transferred within two years, instead of the five years spelled out in the original bridge bank scheme.

Reflecting lingering concerns over the nation’s prolonged economic slump, the major theme at this year’s forum is “A possible scenario for economic recovery.”

During first-day discussions, many participants, especially from the nonbanking sector, said that realignment of the financial industry through such mechanisms as mergers and acquisitions is indispensable.

Imai said Japan’s financial officials must exercise authority to reinforce realignment of the industry.

In his opening remarks, Imai, pointing out that the recent Upper House election results clearly show that the LDP can no longer pass any bill without the cooperation of opposition parties, urged the LDP to work with them.

“We will of course continue to make policy proposals, but the LDP must also draft its policies in a way that gains the understanding of the opposition parties,” Imai said.

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