Would Reform Ruin Japan?

Reviewed By Hitoshi URABE

Article:
"Would Reform Ruin Japan?"
http://www.nytimes.com/2002/10/29/opinion/29MURP.html
(by Akio Mikuni and R. Taggart Murphy) New York Times

Comments:

Ever since Mr Takenaka took office as the Financial Institutions Minister a month ago and began his charge towards solving the bad loans problem, almost every voice of foreign source has been on his side, praising highly of his bold plans. Media such as The Wall Street Journal, The New York Times, and The Economist along with a host of others all have carried articles supporting Mr Takenaka's announced attempt that it is the right prescription and Japan must swallow it to resolve the problem.

The article introduced above is one of few which finally began to recognize that the issue is not so simple. While there are a number of reasons and backgrounds for those who do not support Mr Takenaka's plans within Japan other than those listed in the report, and some of them actually do seem to require serious consideration, this New York Times editorial looks into the issue from the U.S. perspective.

It has been reported that the senior officials of U.S. government have expressed full support and encouragement for Mr Takenaka's plans. And at the APEC meeting last week in Los Cabos, Mexico, Mr Koizumi and other officials were told personally by their U.S. counterparts to have full their endorsements on Takenaka plan. The article cited here questions whether the plan is really good for U.S. and finds it might have detrimental effect on the U.S. economy if the plan to resolve the bad loans issue in Japan were to be implemented as originally reported.

The article points to the fact that Japan holds nearly $3 trillion in dollar denominated assets, effectively supporting the U.S. economy by balancing their enormous trade account deficit. If Takenaka plan were to go ahead as originally revealed, banks would be calling back their loans to corporations, who in turn would be forced to cash in their assets, including those of dollar denominated ones, to meet their cash flow. Banks themselves would be needed to fluidize their dollar denominated investments to pay out to the depositors who would have become anxious of the security of their deposits. Drain of funds in this manner, the article warns, would tip the balance of payments of U.S., which could undermine the country's economy.

While the part denouncing the old guards and vested interests in Japan may be somewhat of a platitude and may seem a bit exaggerated, the article still should provide further insight into Japan's agony in a way not many reports have done thus far, for which makes it a worthwhile reading.