Japan's Banking "Crisis"

The Japanese economy is burdened by an overhang of nonperforming bank loans that are officially recognized to total $367.5 billion but could exceed a trillion dollars if all problem loans are taken into account and economic conditions worsen significantly. These bad loans have weakened Japan's already sluggish economy, undermined the strength of the yen, and are exacerbating the slowdown in Asia's economies. In recent years, Japan has averted a replay of the crisis conditions that accompanied earlier failures of financial institutions, but the problem is immense, and restoring health to the balance sheets of Japanese banks remains a top economic policy concern both in Tokyo and in international financial circles. After nearly a decade of repeated attempts to resolve the problem, the current Koizumi government has set a new deadline for banks to write off the worst of the loans within three years even if this causes as many as 200,000 lost jobs and numerous bankruptcies. The United States and Japan have initiated a Financial Dialogue led by the U.S. Treasury to discuss various financial issues - including the bad loan problem - and the Bush Administration has said it would assist Japan in pursuing its economic reforms in any way it can.