* Govt may need to recapitalise banks, help debt restructure * Debate over scheme will need to wait until next year - Kihara * BOJ must keep easy policy, have limited room to ramp up stimulus TOKYO, May 31 (Reuters) - Japan will eventually need to create new schemes to recapitalise banks and allow companies to restructure their debt smoothly as part of efforts to cushion the economic blow from the COVID-19 pandemic, a senior ruling party official said on Monday. Debate on creating such schemes may kick off next year, when there is more clarity on how firms and households behave in a post-pandemic era, said Seiji Kihara, who is deputy chair of the ruling Liberal Democratic Party’s (LDP) policy research council. For now, the government’s focus should be to keep pumping money to firms affected by the pandemic and offer immediate relief for households hit hardest by the health crisis, he added. “At some point in the future, Japan will need new schemes so we must consider what more the government can do for financial institutions and companies,” Kihara told Reuters. Japan is due to host the Olympic Games in July but is grappling with a fourth wave of coronavirus infections and a slow vaccination rollout. Curbs on economic activity to prevent the spread of the virus have prolonged the pain on Japanese retailers, airlines and the tourism sector, forcing some to seek funding from state-backed lenders. Among ideas that could be explored is to create schemes to inject capital into ailing banks and facilitate debt restructuring for firms unable to survive structural changes caused by the pandemic, he said. “By having a framework ready, you can build a sense of confidence among the public,” Kihara said. Kihara headed the LDP’s panel discussing ways to revitalise Japan’s banking system and played a key role in passing through parliament legislation that allows commercial banks to branch out more into non-financial businesses. With the economy still reeling from the effects of measures to contain a rise in infections, the Bank of Japan has “little choice” but to maintain its massive stimulus programme despite the hit prolonged ultra-low interest rates inflict on financial institutions’ margin, Kihara said. But the BOJ is left with limited scope to ramp up stimulus as its negative rate policy cripples banks, he added. “The BOJ’s policy scope is quite limited,” Kihara said. “Fiscal policy now has a bigger role to play in supporting the economy.” (Reporting by Leika Kihara and Tetsushi Kajimoto, Additional reporting by Kentaro Sugiyama; Editing by Jacqueline Wong) Our Standards: The Thomson Reuters Trust Principles.