Yes, Japan Inc is in far worse trouble than they realize or will admit. It is the second largest economy in the world and it's been dead in the water since 1991.
China just reduced bank lending rates from 9% to 1% as Japan did. Japanese banks used this "free money" to increase monetary volume in:
1) other Asian countries like Korea through loans;
2) in the US through purchases of US Treasuries and real estate.
As Milton Friedman eloquently demonstrated in the WSJ, moneary supply inside Japan has remained tight. Let's hope China is wiser.
Japan does not have a bond market to speak of and their stock market consists 70% of companies holding each other's stock. As you mentioned, lending to healthy small and medium sized business has simply vanished - and it was never very big.
Japan tried a public spending program which failed to lift demand, and the new "tax cut" will fail as well. The tax cut merely offsets the previous increase in Sales Tax.
To increase money supply, the Japanese government is going to have to run BIG defecits for a while. The "Big Bang" regulations require all financial companies in Japan to disclose their TRUE capital positions and losses by March 31 1998. Many additional firms will be revealed to be grossly insolvent.
Cleaning up this mess will restore confidence, and cause lots of pain. Shareholder's value in these firms wiped out, massive lay-offs. All this spells big time Recession, just as it did in the US during the days of the RTC - unless Japan is willing to run the defecits necessary to keep money supply propped up.
Personally, I bet they don't take each neccessary step until the last possible moment - and possibly too late. It's going to be a long period of waiting for the next shoe to drop, one at a time - sort of like a big Imelda Marcos shoe closet.
The Japanese system does not encourage bold action and honest appraisal. As the Japanese say, "The peg that stands up gets hammered down." |
