I have often been asked of late whether the disposal of banks' bad loans will be followed by an economic pickup.

This is a sticky question, but it is all too clear that an economic recovery will still be far off.

In the process of writeoffs, more companies will be forced out of business, leaving more workers out of jobs. And this in turn will adversely affect the nation's households.

Under the present circumstances, the writeoffs will have a severe deflationary impact on the economy.

Even if banks can recover part of their lending through the process, if they cannot find new borrowers, the end result will be a slowdown in the circulation of capital. And unless new business undertakings exceed business failures, the economy will not improve.

Although the bad-loan mess cannot be ignored, clearing away nonperforming loans must be followed by the start of new business undertakings before an end will be able to emerge to the nation's economic woes.

A steady economic pickup cannot be expected without a revival of the private sector. And many market participants remain worried about the direction the stock market will take in 2002.

Indeed, with few companies willing to embark on new business undertakings, bleak economic prospects in Japan could prompt foreign investors to unwind their Japanese stock portfolios.