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Bank of Japan Gov. Masaru Hayami hinted Thursday that the government’s “bridge bank” plan to enable fund flows to continue to sound borrowers at failed financial institutions should also be applied to the nation’s 19 major banks.

Transferring the management of a failed large bank to a new one is considered difficult under the planned scheme because the new financial institution would need a tremendous amount of funds.

Regarding the BOJ’s tactics for restructuring the financial system, Hayami told a news conference that minimizing the impact of bank failures on the system is the most urgent task for the BOJ. “The collapse of Japan’s 19 major banks could have a great influence on the financial system,” he said. “Financial authorities must prevent their failure, especially those which deal in derivatives and have overseas relations.”

While admitting difficulties in financing the transfer of a failed large bank to a new one, Hayami said the bridge bank scheme should be applied to rescuing those banks if possible. “Sudden failures should be avoided,” he said. “Weak institutions should be merged into healthy ones to minimize negative effects on the third party and overseas institutions.”

On foreign exchange rates, the BOJ chief expressed his view that the current yen rate can be termed “unfavorable” or “too low” in light of the nation’s economic fundamentals and its large current account surplus. “Although I’m not in a position to comment on this, the foreign exchange rate of a country’s currency should correspond to that country’s economic power,” he said.

On the recent plunge in shares of Japanese banks on the Tokyo Stock Exchange, Hayami said uncertainties over the proposed merger between the Long-Term Credit Bank of Japan and Sumitomo Trust & Banking Co. were impeding the recovery of market confidence.

Although Hayami did not specifically name the LTCB, he said the controversy over the merger is one of the factors that explain the difficulties 19 major banks are suffering in regaining credit both at home and abroad.

Meanwhile, Hayami admitted the central bank’s responsibility for causing the bubble economy in the late 1980s and mismanaging its aftermath in the early 1990s. “In the late 80s, people had the illusion that the economy would grow forever,” he said. “I can’t deny that such a sentiment made it difficult for us to change our easy monetary policy at the time.”

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