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Japanese Approve $238 Billion Financial Stabilization Package

By David Holley
Los Angeles Times

Japan's lawmakers gave final passage Monday to a $238 billion financial stabilization package, which lays the legal groundwork for Japan to try to restore health to its banking system. However, key details of how the plan will be implemented remain undecided.

The package includes elements that some analysts believe could eventually lead to a brutal banking industry shakeout along the lines envisioned by Prime Minister Ryutaro Hashimoto's "Big Bang" financial system reform program.

Such an outcome would drive some weaker banks into bankruptcy and allow healthier banks to strengthen their positions, both domestically and internationally.

The package allots $135 billion to guarantee savings deposits at weak institutions that are allowed to fail. The deposit insurance is expected to ease the political and economic fallout of allowing dying banks to fail.

The second part of the legislation, however - funded by the package's remaining $103 billion - would pave the way for a potential bailout of weak banks. The funds would be used to boost banks' capital through such means as government purchase of banks' stocks. This could provide short-term support for the economy but in the long run delay efforts to restore Japan's overall financial system to better health.

There was little immediate impact in stock and currency markets of the plan's passage into law by the Upper House of Parliament, which came after approval earlier this month by the Lower House.

The Nikkei-225 index closed Monday at 16,775.52, down 15.49 points, or .09 percent. The dollar was trading at 126.2 yen Monday afternoon in Tokyo, up 1.48 yen from Friday. Traders attributed this moderate weakening of the yen to doubts that the government will come up with any unexpected measures in an economic stimulus package due to be announced Friday.

"There's no impact on markets since everyone knew what the package was all about," said Junji Ota, an analyst at Okasan Research Institute. "However, I think this law should be appreciated. If some bank goes bankrupt now there are solid laws to deal with that kind of situation."