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Japan injects cash into banks; eyes more stimulus

Japan injected cash into three banks, its first such payouts in the current crisis, as the central bank warned the recession was worsening and the government promised a new stimulus plan within weeks.

Collapsing global demand for its cars, technology and other exports has sent Japan, the world's No.2 economy, into its deepest recession since World War Two, with the credit squeeze adding to the woes of banks exposed to small manufacturers.

Bank of Japan Governor Masaaki Shirakawa warned that the economy - already shrinking at its fastest rate since the oil crisis in 1974 - would worsen for some time.

“Japanese exports and production have fallen sharply. As corporate earnings, employment and household incomes deteriorate, domestic demand is also weakening,” Shirakawa told parliament in a bleak assessment.

“Japan's economic conditions have deteriorated significantly and are likely to continue deteriorating for the time being.”

Regions outside Japan's biggest cities have been hardest hit by the recession, and the financial regulator announced on Friday it would inject $1.2 billion dollars into three banks.

The bulk of the money will go to Sapporo Hokuyo Holdings Inc, in Hokkaido, with two other small banks, Minami-Nippon Bank and Fukuho Bank Ltd, also getting support.

They are among lenders that have taken a beating as plunging exports and sliding property prices have hurt their customers, leading to rising bankruptcies among small and medium-size firms.

Finance Minister Kaoru Yosano, speaking just before he left for a meeting of G20 finance ministers in Britain, called for more action by governments around the world to stimulate their economies and said Japan would outline a plan within weeks.

“We strongly support the thinking that each country's efforts to fix their own economies will in turn help the global economy and lead to a stable financial system,” he told reporters before leaving for the meeting of ministers from the Group of 20 rich nations and major emerging markets.

Government officials wouldn't give the size of the new package. But some ruling lawmakers are calling for additional spending of more than ¥20 trillion yen ($205 billion), and a senior ruling party official said on Thursday it would be “considerable” and analysts have called for something bold.

“It is a commonly shared view around the world that Japan's stimulus packages unveiled so far are not enough for the economy, which has worsened the most among industrialized countries,” said Susumu Kato, chief economist at Calyon Capital Markets.

Japanese media have reported that the government may introduce subsidies for eco-friendly cars and home appliances, along with the expansion of high-speed Internet access.

Hampering Japan's government is a political deadlock in parliament. Opposition parties, eyeing the election, have used their control of parliament's upper house to stall government policies.

That has weighed on Japanese markets, taking Tokyo's benchmark Nikkei share average near 26-year lows, although it jumped 5.2% on Friday on brighter prospects for the US economy.

The Japanese government launched a bank-recapitalization scheme in December, aiming to inject capital into regional banks and keep loans flowing to the ailing small to mid-sized firms that collectively employ most Japanese workers.

Major banks, which have also been hit by the falling value of their large stock holdings, have been able to raise about $25 billion in new funds themselves but an analyst said more small banks may need help.

“With the stock market falling and losses on overseas investments growing, a lot of banks need additional capital,” said Kristine Li, bank analyst at KBC Securities in Tokyo.

“For regional banks, their choices are pretty limited. It's more difficult for them to raise money through equity or credit markets, so their only solution is to take government money.”

However, the BOJ's Shirakawa said there were some signs that a barrage of central bank measures taken so far were helping to ease the credit crunch, which has sent bankruptcies soaring.

The central bank has launched programs to buy commercial paper and corporate bonds to try to help firms short of cash due to the credit squeeze.

“The corporate bond buying operation has just started, and if you're asking whether we're thinking about reviewing it, we don't have such a plan at the moment,” he said. (Reuters)