Worried Japanese Are Holding On to Their Yen
Government Studies $80 Billion Bank-Stabilization Plan as Fears of Financial Collapse Spread
By Mary Jordan
Washington Post Foreign Service
Wednesday, December 10, 1997; Page A01
TOKYO, Dec. 9—Back in Japan's heady days, Isao Ogawa sewed custom-tailored suits for the rich. But after the 1991 stock-market and real-estate crash, he put his fine fabrics away. "People didn't have big money anymore," he said. "They started buying suits off the rack."
Ogawa, 55, now sells baked-octopus snacks to commuters at a busy train station. He figured his modest new venture was safe because people will always be hungry. But recently he has felt his job once again threatened by a falling economy. "Usually December means money. It's when people spend. Not this year," he said, as money-conscious commuters walked right by him and his $3.40 treats. "Life is hard."
Millions here feel the same way. It is difficult to find anyone -- young or old, student or retiree -- who does not feel depressed, or at least pessimistic, about the economic outlook. Apprehension about corporate bankruptcies, layoffs, stock-market plunges and the diminishing value of the yen against the dollar are not only making people glum but also changing their spending habits.
In an effort to stem the gloom, Prime Minister Ryutaro Hashimoto announced today that he is studying an emergency plan to restore confidence in banks -- a proposal that calls for the government to issue nearly $80 billion in bonds to recapitalize shaky financial institutions. Over the next several days, more details of the plan are to be released, including tax cuts intended to stimulate the economy and encourage people to shop again.
Richard Medley, associate director of Yale University's Center for International Finance and an adviser to financier George Soros and a number of international investment groups, said he cannot remember a time when so many people representing so much of the world's capital were in Tokyo -- all of them watching Japan's next move. If the government fails to stabilize the banks, he said, the stock market will drop and the yen will dive against the dollar. "But if they do [stabilize], the Asia currency crisis is over. It's that stark."
Many economists are warning of severe consequences if Japan does not intervene and stabilize its financial system. It will be a "crisis the likes of which we have not seen in a major economy since the 1930s," said Russell Jones, chief economist for the Lehman Brothers brokerage firm branch in Tokyo. "There are no soup kitchens yet, but things are pretty depressed; the sentiment is downbeat," he said.
Some analysts say the public perception of how bad things are is worse than the reality. Japan is solid in important ways that set it apart from other ailing Asian nations, they say: It is the second-richest country in the world, with a stockpile of savings; it remains the world's largest creditor nation, with more than $225 billion in foreign currency reserves; and is home to Toyota, Sony and other manufacturing giants.
But the financial sector's woes have had a profound impact on spending patterns here. New car registrations are off nearly 25 percent, meaning that millions of people are holding on to old cars rather than replacing them -- the worst news in 15 years for Japan's mighty car industry. The housing industry is similarly depressed. Housing starts have declined for 10 consecutive months, with 25 percent fewer in October than in the same month last year. Department stores, supermarkets, restaurants, bars and small businesses are all reporting decreased sales.
According to some analysts, the government signaled that it is acknowledging and addressing the problem today by releasing an economic report without the usual cheerleader tone. Instead, for the first time this year, the Economic Planning Agency conceded that private household spending has stalled and that corporate concern about the deteriorating economy is increasing.
Former prime minister Kiichi Miyazawa, a key figure in the government plan to reshape the economy, said in an interview Monday that spirits are low in the country and that he has not "seen the light at the end of the tunnel yet." There is a feeling of "aimlessness and soul-searching," he said, as Japan sets off on a new economic course for the next century. But, he declared, the Japanese spirit of competitiveness has started a move to streamline and weed out the weak, and he predicted the country would reemerge stronger than before.
For years, the Untied States has been pushing Japan to stop propping up troubled financial institutions and to let the free market prevail. Japan did just that in November -- amid spreading financial crisis in other Asian nations -- when it allowed the giant Yamaichi Securities firm and three other financial institutions to fail. While world markets generally took this in stride, investors have expressed concern about the effect on the international financial system if many other such bankruptcies were to follow.
"If the boat is sinking, you plug the hole and worry about how to make the boat better later," said Jones, the Lehman Brothers economist.
As Japan tries to sort out and correct its economic problems, the public mood here darkens. Dozens of interviews with people in Tokyo over the past several days found nearly unanimous agreement that there will be personal cost to the turmoil.
College students fret about where to apply for a job. "What if they go bankrupt?" asked Manabu Suzuki, 22, a graduating Nihon University student. Housewives wonder what things will be like if their husbands are laid off. "What would I do with him home? My whole routine would change," one said.
Some people said their year-end bonuses already reflect the economic woes. Masahito Yazawa, 51, one of 200 employees of a company that specializes in women's necklaces, worries that people will stop buying luxuries. "We already feel the economy is hitting our business," he said. And as a result, year-end bonuses at his company, often $10,000 or more, have been cut back by as much as 40 percent. Even education, a cornerstone of Japanese society, is coming under new scrutiny as people wonder if they can still afford the best schools money can buy.
The economy is seen to be partly responsible for the declining enrollment in Japan's famed, and expensive, "cram schools," which children attend after regular classes and on weekends to prepare them for admittance to the best secondary schools. Once enrolled in these, students were virtually guaranteed to be hired by top firms and have employment for life. But lifetime employment is no longer a guarantee, as 7,500 people found out when Yamaichi Securities shut down.
For the same reason, public high schools, which cost less than $1,000 a year, are suddenly becoming more popular. "It is only natural to choose a public school if you feel scared that your father could be laid off at any moment," said Osamu Yasuda, who publishes a magazine about high school entrance exams.
Part of the malaise is due also to a sense among many here that Japan has suffered an enormous comedown. It does not seem to matter to the national psyche that a significant number of the 15,000 people who recently lost their jobs in the financial sector have new offers or good prospects. People seem to be focused only on the fact that seven years ago the air was giddy with conspicuous Japanese buying, while the atmosphere now is one of uncertainty.
"Every day I watch to see how my bank is faring," said taxi driver Teruyasu Takehisa, 57. "My conviction is that no bank is safe. I am wondering if my closet is the best place for my money." |
