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Posted on 10/01/2002 5:57:30 AM PDT by bert
Fact and Comment
Talk about desperate but dumb moves. The Bank of Japan has caused a stir with its plan to buy equities from large, troubled banks. No other major central bank owns stocks. In the U.S. it is flat out illegal for the Federal Reserve to do so. The BOJ is going to buy the equities to shore up the capital of shaky banks burdened with enormous numbers of bad loans. This amazing, controversial move wouldn't be happening had the bank had its act together. And the deed will only be a short-term palliative: Japan's troubled economy is still in the woods, which is bad news for all of us.
The BOJ is under tremendous pressure to bail out these banks. Politicians had been hinting that the bank's independence would be jeopardized if drastic steps to prevent a financial collapse were not taken. The BOJ caved. The nice thing for Japanese pols about the bank's writing the checks--the costs don't show up in the budget.
Weep not for this institution. The BOJ is reaping the whirlwind of what it sowed a dozen years ago, when it embarked on its aggressive deflationary policy. Central bankers starved the economy of necessary liquidity by increasing the intrinsic value of the yen, inflicting a crushing burden on debtors. In effect, if you borrowed a yen you'd have to pay back 1.5 to 2 yen. Imagine what would happen in this country if corporate debt went up 50% by Federal Reserve fiat. Japan's situation is even worse because its primitive capital markets make businesses far more dependent on bank debt than they are in any other advanced country.
What should Japan do now? Aggressively reflate by pumping out more yen. With a genuine reflation, corporate balance sheets would enjoy enormous relief. Some of those bad or near-bad bank loans would come back to life, thereby enabling banks to clean up their portfolios without destroying the economy.
A crude but effective barometer of inflation/deflation is the gold price of a currency. Between the late 1980s and 2000 the yen appreciated more than 50% against the yellow metal. This is a deflation of Depression-like magnitude. Since then the BOJ has eased sporadically, but not nearly enough. In fact, there are disturbing signs it may be tightening again.
Why has the BOJ been so bloody-minded when the devastation it wascausing became clear years ago? Some observers speculate the bank has had its own agenda: A harsh money policy would force fundamental restructuring of Japanese companies and banks and perhaps even push politicians to begin reforming their deeply corrupt political system. If so, the strategy patently did not work.
A sick Japan is not good for the U.S., not with China on the rise. Other Asian states would feel more secure and be more prosperous if both the U.S. and Japan's economies were vibrant. The Fed should ponder hard how to avoid a Japanese-style deflation here. After all, we're just beginning to recover from the fallout of the much-milder Greenspan deflation of 1997-2001.
(Excerpt) Read more at forbes.com ...
Amazing that Mr. Forbes only lightly brought up a brief mention of the single most attributable cause of Japan's problem: endemic corruption by his corporate friends' firms across the board.
He choses to attack the problem from the standpoint of primarily macroeconomic theory discussion within the confines of a hermetically sealed lab.
He misses the point completely. He is not the first 'knowledgeable' American at a senior level to be bullshitted by Japan, Inc. and he won't be the last. Many so-called Japan Revisionists [actually, more "Japan Realists"] wrote for years that "Japan is Different", (Nihon Ishitsu Ron) precisely because this was the statement in an internal Japanese sense of Japanese corporate culture. The strategy in dealing with Japan would be to deal with Japan as Japan is, not what our subjective American view of them would be. When the West and particularly US trade negotiators caught on and said they, too, believe in a unique corruption aspect of Japan, the PR mechanism of Japan in the USA run by Japan's Embassy, JETRO, K Street lobbyists, Japan-funded think tanks and academicians like Heritage or Cato, and compliant American apologists, was to strongly refute that Japan was anything of the sort. That if anything, it was "just like America".
They sought to disavow any aspects of endemic cultural business corruption. They hoodwinked a lot of people along the way. Forbes Magazine never attacked the problem from this perspective, and yet eerily, the Japanese version of Forbes (Forbes Japan) had a number of articles written by Japanese, among Japanese, in Japanese, that called the problem square on....needless to say, these never saw the light of day translated into Steve's US-side publication. Why was that?
This foundation was very close to both the Chun and Roh regimes, and received large amounts of funding from Korea. Chang Se-dong, a director of the KCIA (after it was renamed the Agency for National Security Planning), testified in 1988 that the Agency donated substantial sums to Heritage, but would not confirm the actual amount. Other documents from a 1988 inquiry, however, gave the sum as $2.2 million. One account noted that Heritage failed to report this to the Justice Department's foreign agents department.[42]
From Japan Policy Research Institute
Oh, he referenced it alright, but he does not give it the key coverage that it deserves, that his US version of his magazine ignores, and that is commonplace discussion in Japan in context of what the Japanese think about their own system, and which many foreigners simply cannot grasp for what it is.
If he raises the issue, pay attention.
I intend to post some of his work for more people to see. Your criticism to the contrary, he is not only a great Amewrican, he is a great writer. The left fears him.
Even Rush Limbaugh is great on Clinton, Toricelli, and Iraq issues but he is an absolute idiot when it comes to Japan, how to understand them, and how to deal with Japan officialdom for the benefit of the United States national interest.
Chew on this for me:
"Japan is saddled with a pernicious combination of dangerously high government debt and low interest rates.
In the 1990s the Japanese attempted to resuscitate their moribund economy with more than $1 trillion in government spending, but it was futile, as the money got sucked into a vast financial sinkhole. The Bank of Japan (BOJ) has lowered short-term interest rates all the way to 0%, but deflationary pressures persist and the economy isn't growing. Japanese consumers are frightened and don't want to spend, so the low nominal rates have had a negligible impact on the economy.
In the eight months since Prime Minister Koizumi took office, the Japanese economy has fallen deeper into recession. Koizumi's fiscal restraint has left the responsibility of boosting domestic growth squarely on the shoulders of the BOJ, but its efforts continue to be ineffectual, leaving the economy in a very precarious position."
The Sinking Yen
Andrew J. Kreiger, 02.04.02
Forbes
He does not go to the root of the problem (which Japanese commentators have more than adequately done).
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