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Japan's government promises a bad-debt plan within 6 months

TOKYO — The Japanese government expects to have a plan for dealing with the massive bad-debt problem at the nation's banks within six months, two Japanese economic ministers said.

The problem loans at Japan's banks, estimated to total 64 trillion yen ($521 billion), is seen as a major obstacle for a turnaround in the world's second biggest economy, stuck in a slowdown for more than a decade.

Worries about Japan's stalling on the bad-debt problem have been growing both at home and in the United States.

Despite those concerns, Tokyo share prices, which had recently hit 16-year lows, surged Wednesday on rumors that the government was stepping in to buy stocks.

The Nikkei Stock Average logged its seventh-largest percentage gain ever, rising 7.49 percent at 13,103.94 — its highest close in three weeks.

Wednesday was the first day of Tokyo trading since the central bank announced monetary measures Monday meant to lower interest rates back to near zero in an attempt to bring life to the economy. Tokyo financial markets were closed Tuesday for a national holiday.

Political and business leaders have been quick to point out that action must come quickly if the Bank of Japan's efforts are to have impact. The action under discussion would be aimed at cleaning up the bad debts at banks as well as wider economic reforms such as encouraging new businesses and easing government regulations.

The ruling coalition set up a task force earlier this month that is discussing a package of emergency measures to lift the Japanese stock market, such as setting up an entity to buy shares and creating tax breaks for individual investors.

Hakuo Yanagisawa, the minister in charge of financial affairs, said he was "a little surprised" Japan's bad debt problem came up at the summit Monday between President Bush and Prime Minister Yoshiro Mori.

"I was glad to see that their attention to the issue is increasing," he said, adding that Japan could set a target for resolving the bad loan problem by September, the end of the first half of the next fiscal year.

It was unclear how much of the work of dealing with the problem loans would be carried out within six months.

Although Finance Minister Kiichi Miyazawa expressed similar resolve, saying the government will be able to set up a basic framework for starting to tackle the bad loan problem in half a year, he warned that the task wouldn't be over for some time.

"It isn't that difficult to draw up a framework for resolving the banks' bad loan problem in about six months," he said. "The actual disposal of the loans will take more time than that."

Yanagisawa welcomed the decision by the U.S. Federal Reserve to cut its main interest rates by half a percentage point late Tuesday as likely to help the Japanese economy.

"The move will have a positive impact on the U.S. economy, and the economic slowdown in the U.S. has been affecting the Japanese economy. I think these effects will ease," Yanagisawa said.