Japan Announces Emergency Economic Package to Promote Structural Reform and Clean-Up Non-Performing Loans.

Business/Government Editors

NEW YORK--(BUSINESS WIRE)--April 6, 2001

The Government of Japan (GOJ) released today an emergency economic package to help troubled banks dispose of non-performing loans (NPLs) and to reduce their vulnerability to stock market pressures. This package builds on the message delivered in the Joint Statement of the Mori-Bush Summit, that firm action be taken to address the NPL problem in Japan. During this meeting, Prime Minister Mori reiterated his determination to vigorously promote structural and regulatory reform to revitalize the Japanese economy and to strengthen its financial system. The package does not rely upon fiscal stimulus nor does it have a public-works component. Rather, it initiates structural reform and the supporting infrastructure needed to dispose of NPLs in order to clean up, and allow, its financial system to operate in a more effective and rational manner.

Through measures that will require troubled financial institutions and corporations to remove NPLs from their balance sheets within three years for new loans and two years for existing obligations, the GOJ will require banks to release their cross shareholdings. This will lead to financial rationalization and a healthier corporate governance environment. To minimize the risk and confusion of releasing this sudden supply of securities onto the market, a "Stock Purchase Fund" utilizing public funds will be established. Additional measures will be introduced to further the structural adjustment that is taking place as a result of the GOJ's ongoing restructuring and reform program.

The Japan External Trade Organization  New York (JETRO NY) provides the following summary of this initiative. Additional details can be viewed in a provisional translation at: http://www.jetro.org/newyork/focusnewsletter/focus13.html

THE NEED FOR CORPORATE BALANCE SHEET ADJUSTMENTS

A major factor contributing to the poor performance of the Japanese economy is that corporate balance sheet adjustments still need to be made in response to the descent of share and land prices following the collapse of Japan's bubble economy. There is also a significant problem with the banks' continuing retention of non-performing loans. This reduces their profitability and interferes with their role as a financial intermediary. Corporate debt is also a problem as cash flow is required to repay debt rather than to fund needed capital investment.

THE NEED FOR STRUCTURAL ADJUSTMENT

Weakness in equity and real estate markets have prolonged this necessary adjustment, while highlighting structural problems. In particular, the stock market has been hampered by cross shareholdings, while the participation of individual investors has remained limited. A weak real estate market is also impairing the effective use of resources and delaying the formation of proper prices. If the Japanese economy is to again deliver dynamic growth, it is extremely important to tackle these structural problems, which have a bearing on all asset markets.

THE NEED FOR AN EMERGENCY ECONOMIC PACKAGE

The emergency economic package tackles these urgent balance sheet and structural problems and suggests ways in which they might be resolved. It covers the revitalization of Japan's financial and industrial systems, needed tax reforms, restructuring of its securities markets and urban renewal programs, while promoting the development of a more active real estate market. By implementing these reforms, it will further the restructuring of Japan's economy and, in so doing, lay the foundation for future economic growth. Given the adjustments that inevitably accompany structural reform, the economic package also seeks to introduce additional regulatory and systemic reform to promote the innovation that will help to secure the nation's long-term economic growth. It also seeks to develop new markets, enterprises and jobs and to put a stronger social safety net in place.

THE CONTENTS OF JAPAN'S EMERGENCY ECONOMIC PACKAGE

Specific policy initiatives incorporated into Japan's Emergency Economic Package include:

-- Coordinated solutions to the problems of financial institutions'
non-performing loans and excessive corporate debt

-- Limitation of stockholding by banks

-- Lifting the ban on treasury stock and abolishing the net asset value
standard for stock investment units

-- Defined-contribution pensions and defined-benefit pensions

-- Measures to enhance and strengthen employment-related safety nets

-- Improvement of securities settlement systems

-- Introduction of exchange traded funds (ETFs) involving stock index-related
investment in kind

This material is published and disseminated by JETRO New York, 1221 Avenue of the Americas, New York, NY 10020 in coordination with KWR International, Inc. 140 West End Avenue, New York, NY 10023, Tel: [phone], Fax: [phone], E-mail: [e-mail] . JETRO New York is registered as an agent of the Japan External Trade Organization, Tokyo, Japan and KWR International, Inc. is registered on behalf of JETRO New York. This material is filed with the Department of Justice where the required registration statement is available for public viewing.