Japan's Finance Minister has warned that the ruling Liberal Democratic Party (LDP) is unlikely to take firm action to clean up the country's ailing banking system until the middle of next month.
Financial markets have been looking for rapid action to restore Japan's flagging economy after emergency talks in Tokyo at the weekend between the G7 industrialised countries and Asian states.
After the Saturday meeting Mr Lawrence Summers, the US deputy Treasury Secretary, said last week's intervention in the foreign exchange markets by the US and Japanese central banks to support the yen had created a chance for Japan to tackle the bad loans plaguing its banking sector and to revive its economy.
"What is going to be very important going forward is the steps that Japan takes to take advantage of this window of opportunity, and the credibility that is established by its actions," he said.
Japan's determination to bolster the economy will be tested tomorrow when a panel of LDP politicians is expected to produce further recommendations on how to tackle the banking sector's problems. But Mr Hikaru Matsunaga, the Finance Minister, indicated in a television interview yesterday that concrete action might have to wait until after the crucial July 12th upper house elections.
The LDP panel, set up last month by the Prime Minister, Mr Ryutaro Hashimoto, is expected to recommend changes in the tax and property laws to help banks deal with the bad loans problem.
Mr Matsunaga has promised government support for the interbank money market as well as for depositors, and the Bank of Japan has already indicated that it will provide any liquidity necessary to support the banking system.
Sir Nigel Wicks, permanent secretary at the UK Treasury, said: "What is needed to restore market confidence is a timetable for dealing with bad loans." He was a member of the European delegation in Tokyo for the G7 meeting which met Japanese leaders and sought to persuade them to provide a clear explanation for the role of the Financial Supervision Agency which comes into existence today, a concrete timetable for tackling the loan problem, and the introduction of consolidated accounting for banks by fiscal 1999.