Japan urges US to bolster banks with tax dollars

The Japanese Government is urging the US to follow Britain's example and inject taxpayers' money into banks, saying that was the most effective weapon in Japan's own banking crisis in the 1990s.

"The US should do it," Hiroyuki Hosoda, secretary general of the ruling Liberal Democratic Party, said today.

"Policy chiefs [from the LDP] asked Finance Minister Shoichi Nakagawa to call on the US to inject capital into financial institutions as soon as possible."

Japan poured 12.4 trillion yen into the country's banks between 1998 and 2003, forcing mergers that cut the number of lenders to seven from more than 20.

More than nine trillion yen has already been repaid, with the government generating a return of more than 10%.

Central to Chancellor Alistair Darling's recovery plan is a promise of up to £50 billion in direct capital injections into the banks, which has been greeted with more enthusiasm on both sides of the Atlantic than US Treasury Secretary Hank Paulson's plan to buy up toxic loans.

Paulson is now considering a similar plan to Britain's.

There is a big shortfall between the amount of capital being raised and credit losses.

Banks worldwide have raised $442.5 billion (£256.6 billion) in capital in recent months while posting $592 billion of writedowns and losses, according to Bloomberg.