Japan really cannot get into international debt default for the same reasons the US really cannot. (Although as issuer of the world's universal reserve currency (gold substitute), the US is in a uniquely favorable position.)
One reason is Japan's shear size, and the size of its foreign reserves, which inspire considerable confidence. But ultimately more importantly is that its debt, held internally and externally, is denominated in its own currency. Meaning Japan can always ultimately inflate its way out of any liquidity crisis (which it is doing at the moment, actually, according to former Fed Reserve Governor Lawrency Lindsey (1% a day increase in currency recently, he said.)
Of course this causes their currency to go down, but since unlike Korea, whose debt is in Yen and Dollars, Japan's is in Yen, it bails debt holders out, rather than making it worse for them. Beggars the whole rest of the country to do it of course.
Besides that, Japan is the world's largest net creditor. Basically, this wealth is held not by banks or even corps, on a net basis, but by ordinary folks, saving for retirement w/out social security. Much is held in their national postal system, which is in part a massive govt owned savings and loan. This pool of savings is being targeted to bail out Japanese banks. Japanese public is understandably not keen.
The solution is controlled, depositor protective, bankruptcy liquidation. Wipe out the wealth of stockholding elites in the shakiest financial institutions. Have the government acquire the assets at a price sufficient to make depositors whole. Then sell off the assets (real estate loans, forclosed properties, etc.) in cheunks to other financial institutions to the extent possible, or if whollly non-performing, in property auctions as quickly as possible but if necessary over several years. Its what the US pioneered with the RFC, and what the world's financial/academic community now regards as a shining brilliant solution.
This is not the Japanese way. There is also vast cross ownership among corps and a fear that who knows when it will end. Basic truth is that the banks are probably in even worse shape than so far disclosed. Endemic no recourse loans to the underworld, etc.
The downside for Japan is not collapse, but continued low growth or even recession. Because assets are still priced above their replacement cost, are still not earning decent returns.
Doug |
