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Japan to increase bailout ceiling to US$110 billion

“We are absolutely not in a situation where we will see Japanese banks collapse one after another.”

— Kaoru Yosano, Japanese economic minister

Japan plans to sharply increase the ceiling on public funds that can be injected into ailing banks to ¥10 trillion (US$110 billion) from ¥2 trillion, economic minister Kaoru Yosano said yesterday.

Japanese Prime Minister Taro Aso’s Cabinet was expected to announce an outline of the fresh package, part of emergency measures to stabilize the nation’s financial markets, as early as late yesterday.

The existing maximum of ¥2 trillion for bank recapitalization is “quite insufficient,” Yosano said in a TV interview.

“I think it’s going to be around ¥10 trillion,” he said.

But Yosano insisted Japan was less affected by the global financial crisis than other big economies, adding: “We are absolutely not in a situation where we will see Japanese banks collapse one after another.”

The new measures are also expected to allow the government-run Banks’ Shareholdings Purchase Corp to resume buying stocks that are unloaded by banks in a bid to support ailing management, media reports said.

The body was set up in January 2002 during an earlier financial crisis and continued operations through to 2006, at which point its holdings were valued at about ¥1.6 trillion.

Under the measures, the government will also ask the Bank of Japan to buy shares from banks, while planning to introduce stricter regulations for stock trading, set more flexible fair value accounting rules and revise the capital ratio requirements for banks.

The government had already announced a first step of market stabilization measures in the middle of last month, including easing stock buyback rules and temporarily suspending sales of government-held shareholdings.

Observers say that by presenting a variety of measures and highlighting its willingness to tap all available resources, the government is trying to ease mounting concerns about the stock market and financial institutions.

In the interview, Yosano backed reported plans by major banks, including Mitsubishi UFJ Financial Group (MUFG), to raise capital by issuing new shares.

“I think it’s preferable for banks to raise capital by themselves” so that they can head off a credit crunch, Yosano said.

MUFG, Japan’s biggest financial group, is considering raising ¥1 trillion in new capital following its massive investment in US bank Morgan Stanley, news reports said yesterday.

It has already asked three Japanese and US investment banks to be co-lead managers of the stock offering, all of which have agreed, the Nikkei Shimbun reported.
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