Bad loans issue cuts to heart of Japan politics

Reviewed By Hitoshi URABE

Article:
"Bad loans issue cuts to heart of Japan politics"
http://straitstimes.asia1.com.sg/asia/story/0,1870,146523,00.html?
Straits Times

Related Article:
"Japan's rotten banks"
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1031119782663
Financial Times

Comments:

Arguably the part which attracted the most attention at Prime Minister Koizumi's reshuffling of his cabinet on September 30 was the dismissal of Mr. Yanagisawa as the Minister for Financial Services and assigning the task of supervising the financial services industry to Dr. Takenaka, who retained the position also as the Minister of State for Economic and Fiscal Policy.

This induced various responses from various sectors, such as the two articles listed above approaching it from very different perspectives. The article by The Straits Times and the article by Financial Times are both intriguing readings, where the former reflects fairly well the sentiment of ordinary people and the latter introduces the opinions of notable analysts on Japan's real problem.

The Straits Times first concisely explains the situation, that Japan's financial system is in jeopardy as the banks are stuck with bad assets worth 43 trillion yen, and that because of it, capital flow is clogged and is not able to be diverted to growing and promising industries, causing the whole economy to dwindle.

The article then explains that Dr. Takenaka with the mandate also as the regulator of banks has been received by people in two ways. As he had been pushing for public money to be utilized to resolve the bad asset problem, there are people who look forward to the eventual state where banks function properly, so that money could start flowing again. Then there are people who are worried. They fear that although the aim is understandable, along the way of actual implementation of measures, banks would be forced to recover their loans from those with questionable credit standings, and the definition of which could be very stringent based on what Dr. Takenaka has been indicating. If the loans are recalled, there will inevitably be companies who would be forced to cease operation, making workers to become unemployed, and would depress the economy even further. Indeed, the feeble stock market after the cabinet reshuffle has been explained by many market participants as a reflection of these anxieties.

Then there are people who flatly dislike the idea because it seems only to bailout the banks, who in their view are the villain in dragging Japan to the present state.

The Financial Times article, on the other hand, is a summary of a number of professional analysts of mostly foreign origin who are also knowledgeable about Japan's affairs. The report is centered on the comments by Peter Tasker, citing his comments while introducing those with different opinions.

Mr. Tasker considers the bad debt issue at the banks is a symptom of a larger problem spread across the whole spectrum of economy, so dealing bank loans is not enough. He does not necessarily agree with the common view on the cause of the depressed economy that it is because money is not available to promising industries. Mr. Tasker argues it is the deflating value of assets that needs to be stopped. He suggests that it could be Bank of Japan who must play its part in provoking inflation to save the values of assets of banks, companies, and ordinary people.

The article sums up by saying that if the real problem is not within the banking sector but a larger scope is needed to tackle it, and when Dr. Takenaka realizes this broader picture, there is a possibility he may back off from the active and aggressive stance he is presently taking.

The two articles are well written and should act as fine guides to think over where the real problem may lie.