TOKYO, July 31: The Japanese government will likely revise controversial plans to cut its guarantees on bank deposits, the top government spokesman said on Wednesday.

However, Chief Cabinet Secretary Yasuo Fukuda denied the revision would amount to a backdown on its plan to end the full protection for deposits — a move intended to encourage consolidation in the overcrowded financial sector.

We will enact the payoff scheme, Fukuda told a regular news conference.

This does not amount to a large change in policy, he said, referring to reports that the government plans to compromise its pledge to cap its protection for all deposits at 10 million yen (740,000 dollars).

Probably during the extraordinary Diet (parliament) session this autumn, we will have to pass legal revisions in order to take concrete measures, Fukuda said.

Prime Minister Junichiro Koizumi, faced with growing fears over the health Japan’s financial sector, signalled a compromise in the payoff scheme Tuesday when he ordered his cabinet to work out measures to stabilise the financial system when the cap is due to comes into effect in April next year.

He told reporters: I have entrusted the matter with (Financial Affairs Minister Hakuo Yanagisawa) to come up with measures to remove fears over the financial system. The premier did not elaborate.

But the Nihon Keizai Shimbun newspaper quoted Yanagisawa as telling reporters separately: We will consider the possibility of fully protecting checking accounts.

The plan had raised fears that depositors would move their check and savings accounts to larger banks once the guarantees were reduced, threatening the existence of many smaller lenders.—AFP