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The government began discussions Wednesday on specific measures to eliminate the bad loans held by Japanese banks, following a request from U.S. President George W. Bush to do so.

The request came Monday during Bush’s meeting at the White House with Prime Minister Yoshiro Mori.

Finance Minister Kiichi Miyazawa proposed Wednesday that new tax exemptions be introduced to assist financial institutions planning to erase their bad debts.

Tax breaks should be offered to financial institutions on condition that they follow a cleanup scheme to be worked out by the Financial Services Agency by the end of this month, Miyazawa said.

He added that new laws may be needed to smooth the way for those tax breaks.

Economic Minister Hakuo Yanagisawa also said Wednesday that he welcomes the fact that the problem of nonperforming loans was discussed at the Mori-Bush summit.

“This will make it easier for us to ask each ministry and agency to cooperate with us (over the issue),” Yanagisawa told reporters. “I am fully aware that this is an issue we must work hard on.”

Meanwhile, Chief Cabinet Secretary Yasuo Fukuda denied that Mori promised Bush during their talks that Japan’s nonperforming loan problem would be cleared up “within six months.”

Fukuda denied media reports that interpreted Mori’s words — Tokyo “will come up with a conclusion (to the nonperforming loan problem) in the next six months” — as a promise by Mori to have the bad loan slate cleared by September.

Some newspapers, both in Japan and in the U.S., seem to have misunderstood, Fukuda said at a regular news conference. “At the actual talks, there was no such exchange.”

The top government spokesman claimed that what Mori meant was Tokyo hopes to come up with the nation’s “future course to solve its financial difficulties” within six months by taking into consideration the discussions being held at the government’s Council on Economic and Fiscal Policy.

Fukuda maintained that the nonperforming loans, one aftereffect of the burst of the economic bubble that is still weighing heavily on the nation’s banks, was a separate issue that “needs to be tackled immediately.” Bad loans at Japan’s financial institutions are believed to amount to 100 trillion yen.

During their talks, Bush called on Mori to solve Japan’s bad loan problem, saying there are concerns in the U.S. that Japan is not doing enough in this area.

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