"What this actually means is that the whole nuclear energy policy is going to have to be rethought in Japan," said Garry Evans, Japan strategist at Tokyo's HSBC Securities.

Analysts doubted that the government would be deflected from its deregulation policy but said the scandal added urgency to the debate on the role power utilities should play in the nation's nuclear programme, if indeed any.

Morgan Stanley analyst Lalita Gupta said in a report yesterday: "The TEPCO incident could well provoke serious discussion of how to handle nuclear power in a deregulating industry - something that has not been discussed much by committee members (discussing deregulation)."

Satoshi Abe, senior analyst at Daiwa Institute of Research, said one question would be whether to take the nuclear industry out of the private sector, which is expected to see stiffer competition with deregulation.

"I think it is asking too much of the private sector to continue bearing the country's nuclear policy banner," he said.

Analysts said a separate nuclear power company could be established and provided with government subsidies if needed.

Government officials, industry leaders and consumer group members have been discussing the next step in industry deregulation since late last year.

The subject of nuclear power and deregulation was already scheduled to be part of the panel's agenda when it resumes talks this month after a summer break.

FINANCIAL BURDEN

Power utilities might be glad to get rid of the reactors.

Analysts say the nuclear industry puts a heavy financial burden on the utilities and that this will become increasingly difficult to shoulder as deregulation proceeds.

Spent fuel has to be recycled and nuclear waste stored.

"As far as electric power companies are concerned, nuclear power stations are not necessarily a positive thing," HSBC's Evans said.

The government has said the TEPCO incident will not alter its nuclear policy, which include plans to build 13 more nuclear reactors over the next decade.

Under the programme, nuclear power will account for about 40 percent of resource-poor Japan's electricity output by fiscal 2011/2012, up from the current 34 percent.

"If the problems with safety come out and the government reduces the number of power stations built, that would be a positive for the power companies, " HSBC's Evans said.

Daiwa's Abe said that prior to deregulation Japanese power utilities could include nuclear-related costs in calculating their electricity rates for customers.

"This will not be possible when there are more bigger players in the market and your competitors begin to cut rates," he said.

CLEAN POWER

Japan sees nuclear power as the key to achieving its pledge to reduce emissions of carbon dioxide and other greenhouse gases by six percent from 1990 levels by 2008-2012.

Nuclear power emits little or no carbon dioxide.

The Japanese power industry is in the process of building various nuclear facilities including the nation's first major nuclear fuel recycling plant at an estimated cost of 2.14 trillion yen ($18.14 billion), due to begin operations in 2005.