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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Jack Chen who wrote (18613)	6/16/1998 11:54:00 PM
From: IQBAL LATIF	Read Replies (2) \| Respond to of 50167

Poor domestic demand- regulated markets and no competition in domestic sector to win over huge mountain of savings are few of the many examples of bad management of Japanese economy. Japanese have intentionally forced kept domestic markets closed to competition like Kodak has displayed as well as insurance and banking sector is notoriously a-global competition. Imagine that even lowering interest rates to zero they have been unable to ignite demand. Banks have recently become very selective in lending. This selectivity is a major change in Japanese economy where credit earlier use to be readily available. They are selective because of limited number of credit worthy clients, the banks have to worry about capital adequacy ratios and have to provide for mountain of non- performing debt accumulated as a result of binge of earlier care free lending to markets and real estate. Now that it is crunch time the banks on one hand need to rebuild their capital base and on the other take care that no new lending may go sour. So selectivity and death of crony lending has kind of killed the demand. Economy to survive not only needs a high saving rate but a certain cut off point domestic spending is required to boast spending, Japanese have always looked with suspicion encouraging domestic spending. They are in severe recession and they need a lot more activity within domestic economy to come out of recession. Export led earnings have made their current account situation great and so has their trade balances. Go beyond this, these $'s need to be recycled, Japan has emerged as low cost provider of global capital that has worked miracles for countries like US who have used these low cost funds within their efficient economies. However, Japan has shown negligence in encouraging investments and spending locally, may be they wanted to avoid ASEA type situation but banking defaults and dwindling local profitability has made situation much worse. I think Japanese are obsessed with current account deficits, although all second World war belligerent nations have shown similar attitude towards current account deficits and inflation but Japan is one country where they never tried to improve local standards of living. Japanese are a great economic powerhouse, but all economics is 'local'. This is the message that Japanese seem to have lost. Like LBJ use to say 'all politics is local', they need to encourage demand they will do a service to their ownself and to the world as a whole. It is for this reason, I believe may be change of Japanese habits may bring a new boom on for global markets as spending spree begins. It is for this I do not believe in Geiders doomsday scenario. Japanese without kicking domestic demand want to kick start this economy the problem is that even at 0 interest rate the companies who can qualify for credit are limited. For a good economy you need credit worthy companies. Japan saving rate is very high in comparison to west, they have a lot of cash and a system which encourages domestic savings, most of common Japanese keep their savings in post office accounts. It is a very much a regulated sector although some changes are being brought. On domestic front 'yen' deposits have no competition therefore returns are not of prime importance. Slowly things are changing, the Japanese want to be competitive and Yen present levels are helping them with good sales along with low interest rates are giving support to domestic banks to reconstruct their capital structures. If you remember not in a very distant past non-one wanted US $ we had seen 75Yen to $ and some thought that we will hit 50 but these excesses in the markets help restore imbalances which otherwise would take much longer to repair. When markets execute their revenge they also provides through in-built establish mechanisms possibilities to rebuild capital structures of corporations and Banks, this happened in US in lean periods and we are witnessing the same in Japan. If you look at any bust Japanese situation is a result of a bust. However, if you also try to look at period before a boom Japanese situation qualify hands down on that test, in my opinion the dusk is appearing for me dawn is not very far away in the east. The sun will rise sooner the better.