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A tiny partner in Japan's ruling coalition said on Thursday that its proposal for a debt moratorium for small firms includes a scheme aimed at preventing losses by banks, a move that could ease investor concerns. People's New Party chief Shizuka Kamei, appointed minister for bank regulation in the new government two weeks ago, sparked a slide in bank share prices when he proposed the three-year moratorium on loan repayments by small firms.
A government task force on loans is trying to thrash out details of the plan as early as next week. The People's New Party did not elaborate on the details of its scheme, which it plans to submit to the task force.
Jiji news agency quoted Kamei as saying on Thursday that he was considering financial assistance for regional financial institutions who might be hurt by the moratorium. It also quoted the bank minister as speaking on a television programme later in the day that the new framework should allow firms to borrow more as needed, even after they are given a grace period in repaying their bank loans.
Despite a huge win in an August 30 election for parliament's powerful lower house, Prime Minister Yukio Hatoyama's Democratic Party of Japan needs the support of the People's New Party as well as the tiny Social Democrats in the upper house in order to ensure smooth passage of legislation. That has given Kamei, an outspoken critic of bare-knuckles capitalism, a greater degree of clout than his party's mere three lower house members would seem to justify.

Copyright Reuters, 2009

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