Anxiety about the state of Japan's banks, rekindled by the government's weekend decision to bail out the nation's fifth-biggest banking group, has turned up pressure on the administration to kill profit-destroying deflation.
The rescue of Resona Holdings also re-ignited calls to oust Financial Services Minister Heizo Takenaka, an academic closely identified with Prime Minister Junichiro Koizumi's reform agenda and a target of old guard discontent.
The government said on Saturday it would rescue Resona with a huge injection of funds after tougher accounting rules pushed its capital adequacy ratio below limits needed to do business.
Media reports said the infusion of public funds could be as much as Japanese Yen 2 trillion (US$17.17 billion).
Ruling politicians yesterday generally endorsed the decision.
But Taro Aso, policy chief of the ruling Liberal Democratic Party (LDP), called on the government to address the persistent decline in prices that is likely to get worse as the nation's banks struggle to dispose of an estimated Japanese Yen 40 trillion (US$345 billion) of problem loans.
Aso attributed Japanese banks' dismal situation to declines in the value of real estate, which was used as collateral for many loans during the late 1980s "bubble economy" and is now a major cause for soured loans.
Aso sidestepped the issue of whether Koizumi -- whose central policy pillar is fiscal reform -- should adopt an extra budget to fund public works as suggested by some LDP heavyweights and their partners in the three-way ruling bloc.
Still backed by about half the nation's voters despite plummeting stock prices and a stagnant economy, Koizumi vowed to carry on with his reform agenda.
Resona's call for help underscored longstanding suspicions that Japanese banks have overstated their capital by taking advantage of accounting loopholes.
Auditors declined to sign off on the group's earnings estimates, which were deemed to be too optimistic.