By Sandra Sugawara and Clay Chandler
Washington Post Staff Writers
Wednesday, June 24, 1998; Page C09

Brushing aside official assurances that Japan is moving quickly to repair its banking system, global investors yesterday renewed their assault on the beleaguered Japanese yen.

In late New York trading yesterday, skeptical traders dragged the Japanese currency to 139.26 yen against the dollar, down from 137.95 the previous day. That left the yen down about 2 percent against the dollar since last Wednesday, when the U.S. and Japanese governments traded billions of dollars for yen in an effort to halt the Japanese currency's slide. On June 15, two days before the government market intervention, it closed at 146.14 to the dollar, an eight-year low.

In morning trading today in Tokyo, the yen continued to slide, changing hands at 140.60 to the dollar.

In New York and in Tokyo, analysts blamed fragmented and sometimes contradictory messages from Japanese officials about government plans to restructure the nation's ailing bank system for the erosion in investor confidence.

"They have put very little flesh on the bones of their plan," said Chris Calderwood, chief economist in the Tokyo office of Jardine Fleming Securities Ltd. in Tokyo. "The problem now is the market is being thrown bits and pieces, which really don't add up to anything cohesive and believeable."

And many predicted that, without further intervention by the two governments, the yen would soon crash through the levels that prevailed before the intervention. International financial experts have worried that the yen's continued weakness threatens to send other Asian currencies plummeting, which would worsen the crisis there and shake markets worldwide.

The yen's slide came despite an unusual public appeal by Japan's prime minister, Ryutaro Hashimoto, who promised that new reforms were well underway but failed to support that contention with new details.

Hashimoto said the ruling Liberal Democratic Party planned legislation that would create a "bridge bank" to address what he termed the biggest problem facing Japan -- the liquidation of hundreds of billions of dollars worth of bad loans, or loans that have not been repaid. The bill would be submitted at the next special session of parliament, which is expected to convene around July 30.

The bridge bank proposal, which is emerging as a centerpiece of Japan's bank rescue efforts, is designed to minimize the impact of bank failures on rising unemployment and bankruptcies in Japan, the world's second-largest economy. The bridge bank would extend loans to struggling customers of failed banks.

Top LDP officials have put forth conflicting proposals for how the bridge bank would work. Traders said they now fear that significant time will be spent trying to reach consensus within this group of politicians, given the way that Japanese decision-making works. They expressed frustration with the apparent inability or unwillingness of Hashimoto or someone else in the government to seize leadership and set the nation on a course of action.

"The bridge bank is still sort of a question mark, because no details have been decided yet, said Betsy Daniels, Tokyo-based banking analyst for Morgan Stanley, Dean Witter, Discover & Co.

To stop a further slide, Japan's leaders need make some "headline-grabbing news" that demonstrates they are willing to crack down on weak lenders, even if such actions hurt important political constituents such as construction or real estate firms, said David Gilmore at Foreign Exchange Analytics. "So far," he added, "we haven't seen that."

Tokyo stock prices slid yesterday. The Tokyo Nikkei 225-stock index fell 1.66 percent. The Nikkei rose slightly in trading today, ending the morning session up 0.64 percent, at 15,151.10.

Meanwhile, there were more news reports of efforts to find a merger partner for Long-Term Credit Bank of Japan Ltd., whose stock recently plummeted to record lows, as rumors about its financial problems circulated. Yoshinobu Yamada, a banking analyst with Merrill Lynch & Co., warned in a recent report that until the outline for reforms becomes clear, market speculation on certain shaky financial institutions could become widespread.

Because of those concerns, many traders said they expected Long-Term Credit Bank's problems to light a fire under Japanese authorities. Some had predicted that more details about the bridge bank would emerge from a meeting yesterday of government and LDP officials who are drawing up the legislation. But a government official told Reuters that the panel members merely discussed the definition of a bridge bank and did not agree on any details.

Under one proposal being discussed, when a bank fails, the nonperforming loans -- those that are more than three months overdue -- would go to the Resolution and Collection Bank, which would try to sell the underlying property or other collateral. The loans of healthy customers would be auctioned off to other banks. And debt that falls in between -- loans to struggling customers whose ability to repay is questionable -- would go to a new, state-run bridge bank.

Another proposal would have the Resolution and Collection Bank, which was set up in January 1995 to handle credit union failures, to act as a bridge bank. A third plan would use other state agencies as a bridge bank. There are also conflicting ideas about whether the bridge bank would be permanent or temporary, and whether additional money is needed and where it would come from.

Despite the talk about the bridge bank, it is still unclear whether Japanese authorities are ready to take the tougher step of closing weak banks. When asked that question yesterday, Hashimoto avoided answering it, saying instead: "What we have to do is stabilize the financial system. We need to strengthen sound banks."

Some analysts said a bridge bank should speed up bank restructuring. Yamada noted that when Hokkaido Takushoku Bank failed in November, the banks that took over its operations were reluctant to take on its substandard loans.

The result has been the business failure of Hokkaido Takushoku customers who could not find new bankers, along with an increase of unemployment in the region of northern Japan where it had served as the major bank, according to economists.

But some analysts worry that a bridge bank might create more problems then it would solve. "Why create a bank to continue to lend to substandard companies? If they are not good-quality loans, why should these companies be kept alive?" Daniels said. "This solution is only meant to prevent the massive failure of construction companies. . . . Basically it appears to be a way to maintain a large voting bloc of the LDP."