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By Kanako Chiba
Tokyo, Sept. 30 (Bloomberg) -- Japan's top bank regulator is under growing pressure to support a bailout of the country's lenders or be ousted in a cabinet reshuffle taking place today.
Financial Services Minister Hakuo Yanagisawa has so far opposed the use of taxpayers' money to bail out Japan's banks, which are saddled with 52.4 trillion yen ($428 billion) of bad loans. That may cost him his job, a top official of the ruling Liberal Democratic Party suggested yesterday.
``Whether or not he can go along with the government is crucial to Yanagisawa's political career,'' Taku Yamasaki, the party's secretary-general, said on a Fuji Television talk show. He didn't elaborate.
Prime Minister Junichiro Koizumi plans to reshuffle his cabinet for the first time since he took office in April last year in an effort to build support for his program to speed the disposal of bad loans, which have paralyzed the banking system and stunted the growth of the world's second-largest economy.
Yanagisawa was asked whether he would change his opposition to using public funds to rescue banks if that was the condition for remaining in his post.
``The process is not yet at the stage of deciding whether I want to stay even if it means changing my stance,'' Yanagisawa told reporters at the prime minister's office.
One investor said the minister was acting as a roadblock.
``The market expects an injection of public money and Yanagisawa is the sole obstacle,'' said Nobuaki Murayama, who helps manage 60 billion yen in Japanese equities at Cigna International Investment Advisors. ``Removing Yanagisawa is deemed crucial for the government to move forward.''
Cabinet Resigns
All 17 Cabinet ministers submitted their resignations today, and the appointments of new ministers will be announced this afternoon. Most Cabinet members are likely to be reappointed, analysts said.
Japan appears close to a decision to bail out banks for the third time in four years. ``The basic government policy is to use public funds for banks, if necessary,'' Finance Minister Masajuro Shiokawa said Friday after arriving in Washington for a meeting of finance ministers and central bankers from the Group of Seven industrial nations.
As late as Friday, Yanagisawa repeated his opposition to using public money to help banks. He earlier denied a report in the Mainichi newspaper that he may resign because of a disagreement with Koizumi over the issue.
Pressure on Banks
Koizumi, asked if he was considering replacing the 67-year- old Yanagisawa, said last week, ``That is something we will have to think about in the future.''
Pressure on the government has mounted since the Bank of Japan announced two weeks ago that it would buy some of the $200 billion of shares held by Mizuho Holdings Inc., UFJ Holdings Inc. and other lenders.
Banks may have to subtract losses from their stock holdings from their capital when they close their books on the fiscal first half, which ends today. That has sparked concern that some banks may not have enough capital to meet international requirements after the Nikkei 225 Stock Average fell to a 19-year low this month.
Speeding the cleanup of banks' bad debts will be the centerpiece of a package of measures to boost the economy to be unveiled in October, Koizumi said last week.
Yanagisawa said the Financial Services Agency and Koizumi are of the same mind on the need to quickly dispose of the non- performing loans held by banks. He didn't say if there was agreement on methods and stressed he would be guided by his own principles on remaining in his job.
``I am mostly shaped by my own sense of responsibility,'' when asked if he was willing to stay in his post. ``I can't help but to continue to take that sense of responsibility very seriously.'' He didn't elaborate.
Talks With O'Neill
Still, there are signs of disarray within the government. Shiokawa initially told reporters that he hadn't discussed bad loans when he met with U.S. Treasury Secretary Paul O'Neill in Washington. Seven hours later he contradicted himself, saying the two had discussed the issue. He later amended his remarks once more to say he had talked about helping the banks but not in detail.
O'Neill said he wasn't sure after the meeting with Shiokawa how the Japanese government plans to get the economy moving after three recessions in a decade.
``I did not come away with an understanding of how these particular interventions are going to contribute to the change,'' O'Neill said at a press conference Saturday.
Yanagisawa has been the minister in charge of financial affairs since October 1998, except for a break of about a year that began in October 1999. He led the nationalization of Long- Term Credit Bank of Japan Ltd. in 1998 and taxpayer-funded bailouts of the nation's biggest lenders in 1999.
All told, Japan spent 9.3 trillion yen of taxpayers' money to bail out banks in 1998 and 1999.