Many firms are receiving this nice treatment. Some U.S. equity strategists, mistakenly believing that Japan is finally tackling its bad debt problem, have begun sending money into Japanese stocks again. They are likely to be hurt. Bank stocks have indeed rebounded, at least until the very recent yen appreciation caused a broad sell off. But strength in bank stocks is mostly because of the political decision by the LDP to bail out current bank stockholders, which are mainly other banks, life insurance firms, and corporate allies.
Banks appear to be writing off large amounts of bad loans.
In reality, they have been doing so for years. But there are three problems with the way this so-called cleanup of the system is being gone about. First, the banks are still behind the curve of mounting new bad debts. With the economy still lagging, Category II loans easily become Category III, even if the banks are loathe to admit it. Secondly, as mentioned, the LDP and the bureaucracy have found a host of ways to funnel credit to companies even while banks are reluctant or unable to lend.