The sun sets on Japan
By MURRAY SAYLE
I WAS at home in our Japanese mountain village one snowy Monday morning last December when a polite young man tapped at our door. We know him well. He works at our local building society.
''Can you help us out, Sayle-san?'' he asked. ''If you have any money around the house, please come and pay it in straight away. It's only for 24 hours. You can take it out again tomorrow.''
''We'd like to help,'' said my wife, Jenny, who is English and sensible, ''but, as it happens, we don't have an account with you. And what you have just said doesn't exactly persuade us to open one. Why do you need my housekeeping money?''
''Well, it's no big deal,'' he said. ''I'll try next door.'' And off he went.
I went round later to ask our visitor what was going on. His new office, all glass and chrome, stands out among the old wooden houses of our village street. ''We don't keep cash here over the weekend,'' he explained. ''I was afraid someone would try to take money out this morning, the word would get round that we couldn't pay and in an hour we'd be cleaned out.''
Then the phone rang. ''If you have any money in the Yokohama Bank, get it out,'' a neighbor advised. ''They'll be the next to go.''
Jenny went down to look and, sure enough, there were queues to make withdrawals. It turned out to be just a rumor but the fact that it was being spread about one of Japan's oldest banks shows how jumpy the Japanese are getting.
Oriental windiness? I consulted a couple of economic classics, Manias, Panics and Crashes, by Charles P. Kindleberger, and his even more ominously titled The World in Depression, 1929-1939.
In the great British crash of 1826, The Times reported, ''a panic seized upon the public, such as had never been witnessed before: everybody begging for money _ money _ but money was hardly upon any condition to be had''.
The Bank of Japan has been pouring liquidity (bankerese for cash) into the Japanese economy since 1989; the presses, it is said, are thundering like Hondas, churning out bank notes, stacking them up in the cellars against _ what?
Readers who get lost in the blizzard of zeros on the financial pages still know the principle of fractional reserve banking, invented in Florence about the time Donatello was chiselling David _ a lot more can be loaned out than is actually in the vault provided everyone doesn't ask for their money back at the same time. It is this quirk of human credulity that makes banking possible.
Credit, we recall, is the Latin for ''he believes it'' and, as long as belief is strong, the cupboard can actually be bare behind the imposing facades favored by bank architects.
So when enough people sincerely want to become rich by buying assets to sell them again, or just buying the right to sell them to the next punter in line, shortage of cash, East or West, has never yet stopped them. Something like this happened in Tokyo in the late 1980s with a bubble, or speculative boom, based on big-city real estate and shares with the slightest land components, even a link to memberships in imaginary golf clubs.
At its height, one memorable calculation showed that Emperor Akihito's palace in Tokyo, about the size of London's Hyde Park, was worth more than Canada.
The banks were left with a package of bad loans totalling, by the Government's own admission, 76trillion yen, or around $A540billion. Oriental inscrutability alone has enabled Japanese bureaucrats to conceal this enormous hole in the national finances for close on eight years while hoping for something to turn up.
It has, however, turned down. And it has happened in, of all places, the lands of tinkling temple bells and pedigreed fat cats (both feline and human), South-East Asia.
''Bubble'' is a misleading metaphor for what happens when greed temporarily overcomes fear in a collective psyche. ''Boil'' would be better, because when a boil bursts it leaves a hole.
Bust follows boom as the process goes into reverse. Japan has been in and out of a deflationary spiral since 1990; and, as John Maynard Keynes observed, there is a degree of deflation no banking system can withstand.
The one bright spot has been Japan's mighty export industries.
Exporting from a depressed economy that imports the bare minimum, however, puts your currency up and up and eventually chokes off your exports.
In 1985, a dollar bought almost Y240. By 1992, it was down to Y80. Exports became all but unexportable. Japan's response was to move production offshore, where meek labor for as little as a dollar a day beckoned from among the palm trees.
Altogether, Japan invested $271billion in other Asian countries in the mid-1990s. The result was to duplicate in those cleaner, greener lands (but not for long after the factories arrived) Japan's own bloated export industries, all competing for the same markets in Europe and the United States.
As the competition got hotter, the Japanese poured more into Asia, blowing up bigger credit-fed bubbles. A year ago ''international speculators'', sincerely wanting to be even richer, selected the Thai baht as the easiest to pick off, in a practised short-sell. The Asian chain of bubbles collapsed, the most spectacular, of course, being Indonesia.
Indonesia was also Japan's biggest borrower. Asia had been taking a quarter of Japan's exports and the loans there suddenly joined the ''non-performing'' mountain back home. An important bank and one of Japan's ''Big Four'' brokerage houses went bust.
The rest slammed the credit window shut. Two weeks later, the young man was at our door, asking for Jenny's housekeeping money.
Let us, a little uneasily perhaps, reconsult our economic guru Kindleberger. On the classical path to depression, he says, we first see a move the system is unused to _ such as the Japanese-led expedition to South-East Asia, perhaps?
Then we have what used to be called overtrading: lenders who have to keep on lending to borrowers who can't stop borrowing. This is followed by a phase of distress, the whole mechanism stretched taut as a Japanese drum.
In the distress phase, says Kindleberger, demand falls, and supply follows. People are thrown out of work, demand falls some more, and so down the deadly spiral.
At least two remedies, contradictory it is true, could be tried: either let the fires of speculation burn themselves out, no matter who gets singed; or, conversely, use public money to prop up every bad loan, every hungry speculator, every bent politician, so the relatively good times can keep rolling for us all.
The Japanese, as they often do, are trying both simultaneously, which is not doing much for their business confidence.
But surely an intelligent, caring world system won't let some selfish impulse, some bad idea, some purely temporary shortage ...
Just a tick. Somebody's at the door. New Statesman |
