Economic and fiscal policy minister Heizo Takenaka expressed concern Wednesday over the deterioration of credit in the banking sector amid the ongoing disposal of bad loans.
"We might have to bear in mind that banks' credit will face downward risks in a period of three to six months," he said.
Takenaka said some U.S. financial officials he met during a trip to the United States last week expect the U.S. economy to recover sooner than expected.
With a recovery in the U.S. economy, "Japan's economy may see bright signs in the latter half of fiscal 2002," according to Takenaka.
Japanese banks must improve profitability and competitiveness to deal with bad-debt problems, he said, adding the banks cannot rely on capital gains from the sale of shareholdings as they did amid continued falls in stock prices.
To create a competitive banking market, Takenaka said, the government needs to go ahead with its plan to end its full protection of deposits in April as scheduled.