Koizumi: reform plans under fire

And that prospect worries observers already concerned about whether the government is prepared to make the tough calls on economic reform.

Noises from Kasumigaseki, the Tokyo neighbourhood which houses most of the national government, indicate that the banking sector will after all get an injection of state funds.

But that is likely further to dent the government's popularity should the banks prove unwilling to crack down on their problem loans themselves.

Rescue

According to the papers, condominium developer Daikyo could get as much as 400bn yen ($3bn; �2.1bn) from its lead bank, UFJ, and other lenders.

Towa, meanwhile, is looking for waivers and debt-for-equity swaps worth 200bn yen, mostly from UFJ and Sumitomo Mitsui.

Its total debts amount to 521.2bn yen, despite a 290bn yen waiver it received in March 1999.

And Misawa Homes, a third builder, said over the weekend that it could be looking for a bailout of its own - the second in just three years.

Shaky foundations

The reason these suggestions cause such concern is that the construction sector constitutes one of Japan Inc's biggest black holes.

Last month, custom-made house builder Shokusan Jutaku Sogo asked the courts for protection from its creditors with debts totalling 13.5bn yen.

And Aoki Corp, another construction firm, was given debt forgiveness early in 2001, but still went bust in December as demand slackened and its debts piled up.

But that is only the tip of the iceberg. Construction firms took advantage of the massive property price boom of the 1980s, borrowing astronomical sums from their lead banks.

The close relationship between the firms and their lenders meant risk oversight was minimal.

State help

The sector has been kept artificially afloat over the past decade by huge injections of government money intended to pump-prime the economy.

But much of the cash has gone on make-work public works projects with little long-term economic benefit.

Construction companies and general contractors are traditionally close to the Liberal Democratic Party, which has ruled Japan - with only one short break of less than a year - even since 1955.

Firesale behaviour at bankrupt retailer Mycal

The construction "zoku", or tribe, as the industry's many supporters in the LDP are termed, have over the years received vast sums in election expenses and other inducements, and have made sure their friends keep their chins just above water.

The fact that some parts of the construction industry is also very closely allied with Japan's 80,000-strong army of professional gangsters, known as the yakuza, has also helped keep banks and government regulators off their backs.

More to come...

Whatever happens to Daikyo and Towa, bankruptcy is now a way of life in Japan.

In 2001, 14 companies listed on the Tokyo Stock Exchange went under, including Mycal, the country's fourth biggest supermarket, with debts of as much as 1,700bn yen.

And Daiei, a leading Japanese retailer, is now working on a three-year plan to pull itself around.

It could get even worse after April, when the government removes the unlimited deposit guarantees which have protected the banking system up to now.