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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!
LRCX 148.32-3.3%Nov 14 9:30 AM EST
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To: nigel bates who wrote (5992)6/23/1998 6:59:00 AM
From: Jess Beltz  Read Replies (3) of 10921
 
Nigel, allow me a quick response to a thoughtful question. Unfortunately, the two (deflation and the banking problem) are linked through bad debt. As the yen and regional currencies decline, ever more loans (often denominated in dollars) to foreign clients slip into default, and the bad debt problem worsens. Furthermore, as the economy in Japan worsens, domestic default rates will rise as well. Add to that the lack of bond markets, and you get an idea what a systemic collapse of the Japanese banking system means, and why current conditions are pushing the Japanese in that direction.

And now the crusher for Japan. As you correctly point out, solving the banking problem would not stop the problem of the declining economy (whether measured in GDP or GNP). It would however allow the BOJ or MOF the luxury of the simple monetary policy tool of raising interest rates to help stop the capital flight that is crushing the value of the yen. That will help put the breaks on the deflationary spiral that is really threatening the regional currencies, particularly at this moment, the Yuan. As things stand, with the banks in such a precarious position, the MOF can't touch rates without destroying the banks (rising rates always move banks' funding costs up immediately while incremental rises in revenues come much later. That's why a rate rise always punishes banks stocks dramatically.)

Hope this helps. Jess.
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