The ruling coalition agreed on Monday not to scrap the sale or alter a controversial clause in the contract for the transfer of failed Nippon Credit Bank (NCB) to a consortium led by Internet investor Softbank CorpPolitical interference would be inappropriate in a business contract, said officials of the three-way ruling coalition.

"The contract has been made and it is natural to keep it unchanged," said Tatsuo Sato, a senior official of the dominant Liberal Democratic Party (LDP). Financial authorities and the consortium this month agreed to delay the sale by a month to September 1 to seek public acceptance of a clause obliging the government to buy back bad loans if they lose 20 per cent or more of their value in three years.

The move followed a public outcry that forced the government to abandon a bailout plan using taxpayers' money to help major department store chain Sogo Co Ltd when the buyer of another failed bank exercised a similar clause.Aizawa has said he supports retaining the contract unchanged.

"Aizawa knows the current stock market drop was not unconnected with recent financial system problems," said the banking analyst at ING Barings James Fiorillo in a report.

"He is now in the driver's seat and there is a big risk of loss of confidence in the marker if he veers off course."

Confusion over the handling of now-bankrupt Sogo has been a factor dampening sentiment in the stock market, which closed on Monday down 111.08 points or 0.70 per cent at 15,727.49 after dipping to 15,394.71 - a level last seen in March, 1999. The Nikkei has shed nearly 10 per cent of its value this month.Softbank's high profile president Masayoshi Son welcomed the coalition decision but said some politicians were still opposed to the deal in its current form.

"If you get married you don't want a marriage that is not welcome," Jiji news agency quoted him as saying.

Questions over new FRC head
The former Economic Planning Agency Chief and the oldest member of the cabinet Although Aizawa is an expert in financial and economic matters, he may not be the best choice to push forward much-needed reforms in the banking sector, critics said.

"If you remember Aizawa's comment as the head of the LDP's financial affairs panel, you can tell that banking sector regulation will go backwards," said the chief analyst at Barclays Capital Japan Hiroshi Kuribayashi.

Aizawa has called for an extension to the ending of full guarantees for bank deposits by one year to March 2002, a move seen by some analysts as delaying reform.

Kuribayashi said frequent changes at the top of the FRC would have only a negative impact on Japan's financial administration, adding that it would be natural for foreign investors to doubt Japan's commitment to banking sector reform.

"The move simply represents confirmation of the LDP's new soft posture toward the banking system," Fiorillo wrote.

Corporate Japan continues to strain under the load of problematic and risky loans left over from the asset-bubble era a decade ago, with recent data showing the amount of problem loans identified by Japan's financial institutions totalled 81.773 trillion yen ($748.8 billion) at the end of March 31, a 1.45 per cent increase from the previous year.

Aizawa is seen by some as representative of his age, an old-fashioned politician who favours LDP influence over the Bank of Japan, wants public assistance to life insurance companies struggling against ultra-low interest rates and opposes opening the rigid banking sector to more nimble outsiders.Some said Aizawa's financial background would serve him well. His predecessor had virtually none.

"He is a former vice finance minister and has strong ties with the finance ministry. He was the head of the LDP's financial affairs committee before becoming the FRC head, so he knows what the problems (in the financial sector) are," said the chief market economist at Fuji Securities Yasunari Ueno.

The FRC is charged with stabilising the financial system, including through the direct injection of public funds, nationalising failed banks or those in danger of going under as well as finding buyers for them.

From January 1, 2001, it will be subsumed into the new Financial Services Agency as part of a sweeping overhaul of the central government bureaucracy that is aimed at greater efficiency.