Japanese banking tsar Heizo Takenaka today expressed satisfaction over the outcome of a bitter political row over his bank reform plans, describing the result as 'five wins and a draw' on the key issues.
But investors, economists, banking analysts and international credit ratings agencies were not so sure, and the Tokyo stock market fell 1.3% to near a 19-year low this morning.
Bank shares rose, however, on relief that plans announced by the government yesterday to clean up the banking sector's massive bad loans had avoided the harshest steps being considered.
The package - including stricter accounting standards, tighter bank supervision and more money for the state-run debt collector - was toned down after a week of fierce opposition from conservative politicians and the banking industry, which at one point had threatened to sue the government.
The government said its proposals were aimed at wiping out bad loans totalling at least 52 trillion yen ($423 billion) that have stifled the world's second largest economy for a decade, but it offered few concrete steps for tackling the problem.
Credit ratings agency Fitch called the plan a disappointing 'damp squib' and said it was unlikely to influence the decision of a team reviewing Japan's sovereign rating.
Fellow agency Moody's called the plan 'too vague' and not likely to affect the economy, while Standard & Poor's, citing 'lots of loopholes', said the reforms would not stabilise Japan's credit ratings.
Takenaka said there were six points that he wanted included in the guidelines, all of which ended up in the plan except for the issue on deferred tax assets - tax refunds that make up nearly half of banks' core capital.
Taking away that particular tax break could have pushed bank capital asset ratios below requirements, paving the way for public injection of funds and possible nationalisation.
The government said it would come up with ways to make it easier to inject funds into banks - a move many bankers see as the first step towards state control.
It also called for tougher accounting rules that would assess loans more strictly, which if implemented could reveal the true extent of the bad loan mess.
