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IBJ bail-out sends Nikkei soaring

THE JAPANESE Nikkei stock index soared more than 400 points yesterday, after the Industrial Bank of Japan (IBJ) became the first bank to take part in the government's new bail-out scheme.

IBJ's decision to agree tough financial conditions in return for an injection of capital from the government sparked hopes that other major banks would also take part in the reforms.

The Japanese government has set aside 25 trillion yen (pounds 130bn) to help the country's debt-ridden banks shore up their capital bases and increase lending to Japanese business.

Stephen Lewis, chief economist at Monument Derivatives, said: "Confirmation that IBJ will apply for public funds indicates that the terms on which the funds are to be made available will not, as had been feared, be too onerous for any bank to consider taking them."

News of the move sent the Nikkei soaring by 3 per cent to close at 14,216.33, up 408.28 points. Despite market hopes, the signs were yesterday that other major Japanese banks could be slow to follow the lead set by IBJ, Japan's seventh-biggest lender.

A spokesman at Bank of Tokyo-Mitsubishi, Japan's largest bank, said: "We are considering the matter but have not made any decisions yet."A Sakura Bank spokesman said: "We applaud the passage of the [bank recapitalisation] bills. But at a time when conditions [to obtain public funds] have not been decided yet, we would like to make utmost efforts to raise capital on our own."

Mr Lewis said: "IBJ's example will not necessarily be followed by the city banks. IBJ is a long-term credit bank, a type of institution that is widely recognised as having no future in the deregulated capital market that the Japanese authorities are seeking to establish."

Analysts cautioned against viewing the government's plans as the definitive solution to the problems of the Japanese financial system. Brian Waterhouse, at HSBC Securities, said it "may go some way to recapitalising the banks, but I doubt it will have any real impact on the credit crunch at all".