The economy cannot afford an extension of the government’s full guarantee on regular deposits beyond the end of March 2005, Bank of Japan Gov. Toshihiko Fukui said Tuesday.

“It would be tragic for the economy to continue on, with this gap between the nation’s industrial sector, which has implemented many structural reforms, and the nation’s financial sector,” Fukui said during a financial symposium in Tokyo.

The March deadline is the “final hurdle” facing Japan’s banks, he said.

In April 2005, the government will cap its guarantee on all deposits at 10 million yen per bank.

Observers wonder whether smaller regional banks will be able to prevent depositor flight when this happens, or whether the government will be forced to extend protection yet again.

During the symposium, Takeshi Kimura, who serves as administrative director of the nonprofit organization that organized the event and is one of the key figures behind the FSA’s current banking reform program, asked Fukui whether banks will be ready to convince depositors that they are sound by this deadline.

“We’ve spent 10 years preparing for this deadline,” Fukui said. “If we are to claim to be a world economic presence, we had better be ready.”

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