U.S. urges Japan to speed action on troubled loans

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The United States urged Japan last week to tackle more aggressively the bad loans weighing down its banking sector.

In a meeting between Japanese and U.S. business leaders and government officials, U.S. delegates praised Japan's effort to pinpoint the problem loans but said Tokyo must do more to dispose of them.

"Accelerating the process of moving forward on this would be helpful for the economy," Randall Kroszner, a member of President Bush's Council of Economic Advisers, told reporters after the meeting.

Kroszner said it was important for Japan's banks to clear their books and start afresh with new loans to worthy business in order to keep the economy growing. He did not offer specific steps the government should take.

Tokyo has said that problem loans at the nation's banks total $281 billion. But private economists warn the problem is likely much bigger.

Last month, financial officials said they had beefed up inspections to arrive at more accurate figures. The government also has promised to clean up the debts in three years.

Analysts say such a step is necessary before Japan can emerge from its long economic slump. But some analysts say the government's time frame is too long and that a public bailout of the banking sector may be needed.

Standard & Poor's also recently cut the credit rating of the world's second-largest economy to a fourth-ranking "AA-," citing Japan's "policy paralysis."

The government and central bank have failed to reverse two and half years of falling prices, rein in Japan's "huge" national debt or force banks to trim the bad loans that are choking new lending, the S&P report said.

Still, "the rating on Japan assumes that, despite Japan's political difficulties, the nation will be able to restructure its economy," said the report by S&P, which rates Japan among the lowest of the Group of Seven industrialized nations. "The risk is that even if reform is pushed through and sustainable growth is restored, it could be too late to avoid default."