Tokyo, Feb. 22 (Bloomberg) -- Japan's plan to end 2 1/2-years of deflation will focus on measures to prop up stock prices and hasten the disposal of bad loans, Finance Minister Masajuro Shiokawa said. ``Prices continue to decline, which is unfavorable,'' Shiokawa told reporters after today's Cabinet meeting. ``We must stop that as soon as possible.'' The decline in prices erodes company earnings, making it harder for them to pay back loans. As bad loans mount and the value of stock and real estate held as collateral fall, banks have cut lending. The government wants to reverse a five-year decline in lending that has starved the economy of fresh credit. Shiokawa didn't elaborate on the specifics of the plan, which is expected to be released Wednesday, one day before central bank policy makers meet. The yen capped a losing week, with some investors already bracing for disappointment, after Economy and Fiscal Policy Minister Heizo Takenaka suggested the plan will lack tough policies and may be phased in slowly. ``Near-term policies are very important, but I think we need to take a patient stance and take steps slowly,'' he said. ``Measures to stop deflation within two years must be taken deliberately.'' The yen was recently trading at 134.32 to the U.S. dollar, from 134.20 in New York late yesterday. ``The sense of disappointment is already growing,'' said Noriyuki Kato, head of foreign exchange at ING Baring Securities (Japan) Ltd. ``We haven't seen any concrete plans after so long.''

Looking to Hayami
The government will ask Bank of Japan policy makers to ``wrack their brains'' for ways to stop prices falling when they meet Thursday, said Yuzo Kobayashi, vice minister for economic and fiscal policy. Kobayashi is scheduled to attend the policy meeting, along with Takenaka. Bank of Japan Governor Masaru Hayami this week called on Prime Minister Junichiro Koizumi to inject public funds into banks, fueling speculation he will pump more money into the economy in return. Shiokawa today said the government can't force banks to accept an injection of taxpayer funds to shore up their shrinking capital. Chief Cabinet Secretary Yasuo Fukuda said there's ``a consensus in the government'' that there's no immediate need to inject taxpayers' money into banks.

Bad Loans
``There's room to consider'' speeding the disposal of bad loans by allowing lenders to sell loans to the state-backed Resolution and Collection Corp. at book value, rather than market price, Shiokawa said. Ruling Liberal Democratic Party legislators are at odds over whether to allow that. Koizumi yesterday said loans should be sold at market value. Some legislators have proposed an alternative option of allowing banks to sell bad loans to the RCC at ``effective book value,'' which is the book value less provisions set aside for losses. Japan's 17 biggest banks had 22.5 trillion yen ($168 billion) of bad loans as of Sept. 30, according to government estimates. Koizumi has asked the Ministry of Economy, Trade and Industry to make it easier for small- and medium-sized businesses to borrow, trade minister Takeo Hiranuma said. Small companies that can't get credit elsewhere will be allowed to tap the state-run Shoko Chukin Bank for as much as 30 million yen ($224,000) in unsecured loans plus short-term working capital, Hiranuma said. The government will ease repayment rules on state-guaranteed loans and make it easier for companies to borrow using accounts receivable as collateral, he said. The benchmark Nikkei 225 stock average, which yesterday posted it biggest gain in 11 months partly on optimism the government will take steps to end deflation, rose 0.6 percent to 10,356.78. The index climbed 4.7 percent yesterday.