The Industrial Revitalization Agency is Being Set up to Fail


The Asahi Shimbun says that the new agency won't come to soon for banks. Government sources said the guidelines would encompass three general principles. They will put the envisioned Industrial Revitalization Agency at the center of the fight against excess indebtedness; they will address the problem of industrial overcapacity; and they will include measures aimed specifically at small and midsize firms.The agency will be tasked with taking over the nonperforming debt of struggling companies. The government would then provide the borrower with financial assistance, under provisions of the Industrial Revitalization Law.The guidelines, in addition to defining the organization's role and legal status, would provide criteria for deciding which ailing companies are eligible for such help. They would also establish a formula by which to determine the price the agency would offer for nonperforming debt.
The goal will be to sort the viable companies from the zombies, and allow the latter to go under. Because the revitalization agency will benefit 20 to 30 large companies, meanwhile, the draft guidelines also seek the creation of separate measures to help smaller companies. Small businesses will bear the brunt of the pain resulting from the bad loan disposal drive.


But we believe the Industrial Revitalization Agency is being set up to fail. First, it will be run by an LDP politician, Sadakazu Tanigaki, who is not known for his reform fervor. Second, it will buy NPLs from other than the main banks of the borrowers,and work with the main banks. Third, the "dirty 30" that account for the majority of the banks' NPLs would not meet the agency's criteria for revitalization.




Asahi Shimbun

Sharp Depreciation of Yen Needed to Escape Japan Deflation


Kenneth Rogoff, Research Department Director of the IMF, believes that, for Japan to escape deflation requires a sharp depreciation in the yen, and global monetary policy coordination among the G3 to mitigate its global impact. "When the day finally comes that the BOJ can sucessfully engineer reflation instead of deflation, its very likely that we would see a very sharp depreciation of the yen"

Reuters

Financial Revival Program Ignores Bad Debt in Public Sector


The government says its financial revitalization programs will stem asset deflation, which is gripping the Japanese economy. But the package, which focuses on cleanup of bad loans at private banks, fails to address one major issue - massive bad assets held by semi-public corporations affiliated with local governments. One estimate has non-performing loans related to the Fiscal Investment and Loan program at JPY84 trillion. Others guess as much as JPY100 trillion.