Japanese finance minister to quit

Hakuo Yanagisawa, Japan's financial services minister and the most critical figure in the country's banking crisis, is set to resign tomorrow.

A source close to the Japanese cabinet said that the resignation was "almost 100 per cent certain" to come before the forthcoming government reshuffle. The source added that the banking supremo was equally certain to go down fighting.

The removal of Mr Yanagisawa would be seen by many financial analysts and political observers as a positive move. He is regarded by large parts of the ruling LDP party as the chief obstacle to a real solution to Japan's problems.

The country is drowning in a flood of bad loans that are conservatively estimated to be around the 50 trillion yen (£300bn) level, and the problem has cast a huge shadow over the banks that extended the loans in the first place.

The recent falls on the Japanese stock market have further endangered the banks by threatening their capital adequacy ratios, which are tied to the value of their share holdings. The crisis is so great that its significance has not been lost on equity markets outside Japan: a collapse of one of the so-called "big four" banks would create mayhem among debtor corporations around the world.

It is generally accepted that the banks need to undergo painful reforms, and after his election last April, it was hoped the Prime Minister, Junichiro Koizumi, would start that process. He has not been able to, however, because of the staunch refusal of Mr Yanagisawa to support a gov-ernment bail-out of the banks.