TOKYO (AFX-ASIA) - Prime Minister Junichiro Koizumi's basic economic policy, including new proposals to resolve the persistent bad loan problem, has gained approval from some but wider scepticism from many who question a lack of details in the programme.
Analysts' opinions divide roughly between those who see it as marking a major shift in Japanese politics and are willing to follow the vision in the plans, while critics note the absence of detail, describing the plan as disturbingly vague.
Some said they recognise in the administration a new honesty and long-term focus that has been wanting in previous governments, noting in particular its willingness to accept the reality of low growth in the near-term.
The doubters, however, believe the plan sidesteps the key issue of the banks' classification of bad loans, which potentially leaves many "grey assets" of dubious quality on the books -- and therefore allows the real problem to go untouched.
Few also envy the government's task of pushing through a potentially radical departure from Japan's recent political past, with opposition likely to rise among public officials and even Koizumi's currently huge base of popular support.
Some even fear the proposals may be only a political sop to President George W Bush, who will meet Koizumi at end-June, noting their surface similarity to a scheme employed by the U.S. to deal with its own banking crisis in the 1980s.
Koizumi late yesterday unveiled his blueprint, including plans to urge the major 16 banks to sell their bad loans to the Resolution and Collection Corp if they fail to dispose of the loans within 2-3 three years.
The RCC is expected to play a role -- modeled on the Resolution Trust Corp of the U.S. -- in securitising banks' bad loans, as well as secured real estate, to help reduce bad loans and stimulate property transactions.
At the same time, State Minister for Economic and Fiscal Policy Heizo Takenaka said the economy may grow at between zero and 1.0 pct a year on average over the next 2-3 years as the restructuring efforts go ahead.
"This new bank plan is potentially a major breakthrough," HSBC strategist Garry Evans said in a note titled 'Package Tour de Force.' "The new proposal ... is a good example of how the policy process is working under Koizumi."
He said the plan marks a major departure from previous proposals, drawn up by Minister of Financial Affairs Hakuo Yanagisawa, that aimed to resolve the problem while denying the possibility of an injection of public money.
"What has clearly happened in the past weeks is that Koizumi has listened to the many people advising him that a more radical solution for the banks is essential and indeed is perhaps the key plank of structural reform," Evans said.
"Yanagisawa had little choice but to agree to a joint proposal that was more radical than anything proposed before." Evans said the use of the state-run RCC to buy banks' bad loans avoids a politically unpalatable direct injection of government funds into the banks, which are associated in the public's mind with Japan's economic woes.
"Some investors, and even more so the Western financial press, have complained that Koizumi's ideas are still vague and lack details," he said.
"It should not be forgotten, though, that he has been Prime Minister for only 54 days. In most democracies, an incoming administration has several years in opposition to hone its policy programme."
Merrill Lynch chief economist Jesper Koll was equally positive. "This is the first time in Japan's post-war history that a government does not focus on short-term economic growth targets. Koizumi gets 10 out of 10 for delivering the right vision at the right time," Koll said in a note.
"This pragmatic realism marks an important change from past political priorities. Judging from this package, the era of policy complacency has come to an end," he said.
"While critics lament a lack of detail, we're upbeat. Supply-side agendas always lack detail. The whole premise is to unleash private entrepreneurship by cutting government intervention."
JP Morgan senior economist James Malcolm was more guarded, although generally optimistic, noting what many have said that since Koizumi came to power, the hardest part of the reform programme is settling the details.
"I think it is reasonably positive that banks that don't meet their disposal criteria will have bad loans removed," Malcolm said. "The devil in all this stuff is the detail."
On this point, the critics agree.
BNP Paribas bank analyst Naoto Odagiri said he was unimpressed by the plans, citing "a lack of details of specific appropriate measures," as well as the issue of how loans are classified. "There is a problem with the definition of the words 'bad loan'. There is no recognised definition, so banks are still able to hide bad loans," he said.
"The problem is the value of the loans, because if the value goes down further the banks will lose out," he said, while on the other hand, "if the body has to buy too many bad loans, they will have to use taxpayers' money."
He added: "I have strong doubts on the validity of the reforms. They could end up being totally meaningless." Similarly, Goldman Sachs analyst David Atkinson questioned the effectiveness of the new approach.
"Most banks have been dealing with non-performing loans for borrowers with insolvency risk successfully, more or less; the key is rather how to halt the deterioration of lending assets (now categorized as healthy)," he said.
The major bank's bad loans, under a broader definition than they themselves allow, could total 60 trln yen, not the 12 trln that the banks claim, UBS Warburg chief economist Hiromichi Shirakawa said. "The problem to me is with the non-core bad loans. Why do they not touch upon the non-core bad loans?" he asked.
Shirakawa said the use of the Resolution and Collection Corp as a vehicle for tidying up the mess is mostly a result of the 'civil warfare' that has broken out between key government figures and departments.
"The RCC has come to the front but that is very symbolic. It is because the (Financial Services Agency) is very negative on putting pressure on the banking sector to more aggressively dispose of bad loans," he said.
"Takenaka says that non-core bad loans should be provisioned off but Yanagisawa continues to oppose that idea. That means ... strengthening the functioning of RCC," he said, added: "Japan has to show something to the U.S."
International University of Japan professor Takahiro Miyao said Koizumi has been able to take charge of the political situation at the moment precisely because of internal disputes as well as the elections due at end-July.
"But I think the atmosphere might change rather drastically after the Upper house elections (next month). Many people are reluctant to talk now, it is a bad time to raise objections," he said.
"The private sector is supporting the program because they are afraid to raise any objections (but) some of the research arm of the Keidanren (business lobby) are expressing some confusion and worry," Miyao added.
"It is like 'tatemae' and 'honne'," the Japanese concept of presenting an external face to the world and hiding one's actual beliefs. "Publicly they have to support it but deeply they are upset."