Zeev: Another of the many places where money is "locked up" is the pension fund (corporate or public). A series of articles in the Sunday & Monday editions of the Nikkei Keizai Shimbun appear to indicate that the Japanese bureaucrats and politicians may, at long last, be on the verge of developing the consensus necessary to start confronting their banking and economic problems in a meaningful way. Obviously, it takes a very long time to build a consensus in Japan. Once that is done, I believe that they will act with all due deliberate speed, but not in haste (of course). Take care, Randy
Bridge Bank To Get 30 Trln Yen In Public Funds: MOF Draft
The government should draw from an allocation of 30 trillion yen to support the public bridge bank it plans to establish to smooth the liquidation of collapsed banks, the Ministry of Finance proposed to a committee of the ruling Liberal Democratic Party. The bridge bank scheme is designed to collect outstanding loans from bankrupt private banks until operations are transferred to healthy banks.
When the loans become uncollectable at the bridge bank, public funds should be injected from the 30 trillion yen allotment already set aside to protect depositors and for other purposes, MOF officials said. To clarify responsibility at the failed bank, a strict supervision process, including the establishment of a judging committee, is also proposed.
The main role of the bridge bank, which is likely to be set up for a limited period, should be prompting the smooth liquidation of failed banks, the officials said. It should not be allowed to help troubled banks, they added.
Financing the bridge bank will likely be done via the Bank of Japan. The MOF plan points out that legislative revisions will be needed, since the 30 trillion yen was initially allocated for securing customer deposits and reinforcing banks' capital adequacy.
The LDP is expected to finalize its plan by July 2.
(The Nihon Keizai Shimbun Monday morning edition)
Financial Supervisory Agency To Lead Govt Bridge Bank Scheme
The Financial Supervisory Agency will play the dominant role in administering the bridge bank system being planned by the government and ruling Liberal Democratic Party to take over the operations of failed financial institutions, government sources said Saturday.
Enabling legislation will be submitted to an extraordinary Diet session expected to be convened after the July upper house elections.
The agency will have wide-ranging powers, including the authority to determine whether a given financial institution is bankrupt or not. But its main strength will be the power to force a failed institution to transfer some or all of its operations to a bridge bank, the sources said.
A key aim of the bridge bank scheme is to give financially sound borrowers continued access to credit while the fate of their lender is being determined.
If a financial institution is found to be bankrupt, the supervisory agency will be allowed to accelerate the liquidation process by bypassing the standard legalities, such as holding shareholders' and creditors' meetings.
A bridge bank will be created for each bankrupt financial institution, with the cost of establishment paid from public monies. The banks will be owned by a holding company to be set up by the Deposit Insurance Corp.
The new-style bridge banks will take over only sound or performing loans from bankrupt institutions; problem loans, including irrecoverable lending, will be transferred to the Resolution and Collection Bank.
Each bridge bank will be created, in principle, for two years, during which time a merger partner or buyer of the bankrupt institution is expected to be found, the sources said.
(The Nihon Keizai Shimbun Sunday edition)
Japan's Economy To Worsen In July-Sept: Nikkei Forecast
The Japanese economy will continue deteriorating in the July-September period, indicates a quarterly "economic weather forecast" compiled by The Nihon Keizai Shimbun. None of the 30 industry sectors covered by the survey is expected to improve from the previous quarter.
Travel industry revenues will take a big hit from the missing ticket scandal that broke just before the World Cup soccer tournament got under way in France, while the early advent of the rainy season means slower sales in the restaurant trade. The Nikkei diffusion index, which fell sharply to negative 43.8 in the previous quarter, will remain on the same low level.
The telecom sector, already reeling under the double impact of falling prices and lower volumes, will see another round of price competition with the July 1 entry of international giant Kokusai Denshin Denwa Co. (9431) into the domestic market.
Machine tool orders, a key leading indicator, fell into negative territory in March for the first time in 47 months, suggesting the reluctance to invest in plant and equipment has spread from smaller businesses to big companies.
Meanwhile, the side effects of the weak yen are taking their toll on various industries. The pulp and paper industry, for example, is forced to pay increasingly higher prices for imported raw materials.
Likewise, automakers cannot turn to exports to get back on the road to recovery as new car demand in Asia is weak due to the ongoing financial crisis while a surge in U.S. exports could reignite trade friction.
(The Nihon Keizai Shimbun Monday morning edition)
Ministry To Lower Pension Funds' Assumed Interest Rate To 4% Level
The Ministry of Health and Welfare plans to lower to about 4% from 5.5% the assumed rate of interest for public pension funds, probably in fiscal 1999, ministry sources said. It views maintaining the targeted return for pension funds at current levels as unrealistic against the background of rock-bottom interest rates.
A lower assumed rate will inevitably cause a rise in pension premiums, they added.
The move would represent the first revision of the assumed interest rate since fiscal 1989, when it was lowered from 7%. Accordingly, the assumed rate of interest for corporate pension funds, including employee pension funds, and mutual aid pension funds, to which government employees contribute, would also likely be lowered.
To help finance the government's loan and investment program, the ministry currently transfers pension premiums from private-sector salaried workers and national pension funds from the self-employed to the Finance Ministry's Trust Fund Bureau.
But investment return for such deposits has been declining due to falling interest rates. Yield on funds investment for employee pensions in fiscal 1996 stood at 4.99%, while that of national pension funds languished at 4.56%. Returns for fiscal 1997 are expected to be even lower.
As a part of fiscal investment and loan program reforms, the Health and Welfare Ministry plans to stop transferring pension funds to the program as early as fiscal 2000. It instead hopes to invest new pension fund money in the capital markets.
(The Nihon Keizai Shimbun Monday morning edition)
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