/www.bloomberg.com/ By Ann Saphir, Kanako Chiba, Tatsuo Ito, Mikako Nakajima, Mayumi Otsuma and Yoshiko Matsushita
Tokyo, Oct. 23 (Bloomberg) -- Two of Japan's top economic ministers today suggested the government will spend more to brace the economy as it forces banks to write off about $420 billion in bad loans.
Finance Minister Masajuro Shiokawa said Japan ``may reconsider'' a 30 trillion yen cap ($240 billion) on new bond sales to fund spending aimed at reversing the economic drag as banks pull the plug on deadbeat borrowers. Japan should send a clear message it will put together an extra budget in the Diet session that begins early next year, Trade Minister Takeo Hiranuma said.
Prime Minister Junichiro Koizumi has resisted such calls because he doesn't want to add to a national debt that's projected to reach 140 percent of gross domestic product by March 31. Yesterday, members of Japan's ruling Liberal Democratic Party balked at a plan to speed bad-loan disposal.
``If the government isn't going to spend money to counter the deflationary side effects, it should not go ahead with speeding up bad-loan disposal,'' said Taro Saito, an economist at NLI Research Institute. ``I don't think they have any choice about doing it, but not in this way.''
Financial Services Minister Heizo Takenaka said he won't change his stance on tackling bad loans at Japan banks after a clash with the ruling party forced him to delay the release of his plan yesterday.
Takenaka said Prime Minister Koizumi has pledged to let the top bank regulator pursue his own methods, which a senior LDP lawmaker yesterday described as ``radical.''
Stocks Fall
Stocks fell and bond futures gained after yesterday's delay in releasing the bad-loan plan. The Nikkei 225 Stock Average dropped 4.57, or 0.1 percent, to 8684.82 as of 12:40 in Tokyo. Ten-year bond futures for December delivery rose 0.20 to 141.30 as of 12:41 Tokyo time, on investor speculation prices will fall further.
Investors say Koizumi and Takenaka were forced to succumb to the pressure from the ruling Liberal Democratic Party and its coalitions.
They've ``basically been buried and succumbed to political pressure,'' said Akio Yoshino, a general manager of investment research at SG Yamaichi Asset Management Co., which manages 1 trillion yen.
Wait and See
``First, there will be anti-deflation measures, then an extra spending package and finally the bad-debt disposal plan. I think that's the trend now.''
Officials signaled a spending plan may not be imminent. Koizumi today repeated he won't consider an extra budget in the current Diet session, which ends in December. Still, he left the door open to increase spending in the next Diet session, starting in January.
``We have to watch how big a shock the bad-loan write-off is on the economy before deciding whether to compile or draft an extra budget,'' Shiokawa said.
Koizumi told cabinet members today he plans to release the bad- loan plan and measures to help the economy by Oct. 31.
Hiroyuki Hosoda, minister for Okinawa, Hokkaido and information technology, said Koizumi has already agreed spend money to boost the economy, Dow Jones said, citing Kyodo News.
``The Cabinet has decided on an extra budget in January,'' Hosoda told a news conference, the report said. ``It may seem far off, but that's less than three months''