"The Japanese economy is moving into recession following the banking crisis and credit crunch. Property prices are on the slide. Business bankruptcies are increasing” (Socialist Standard, November 1992).
When we warned of worsening prospects for the Japanese economy our view was a minority one. The consensus view expressed in the capitalist media was that by government intervention using tax cuts and increased public spending the economic slowdown could be reversed.
At the beginning of 1993 when signs of a developing trade war appeared, the conventional view was that negotiations among the world’s economic superpowers could settle their differences. We stated however "the present trade war cannot be ended by GATT. NAFTA, or G7 summits. It will, continue in one form or another as long as world production is organised for profit rather than use" (Socialist Standard, April 1993).
At the end of July this year Cosmo, Japan's fifth largest credit union (these are similar to our building societies) collapsed following the withdrawal by depositors of 60 billion Yen (£425 million). Cosmo which has 15.297 members admitted that bad debts were about ¥170 billion in May with interest in arrears on loans of ¥184 billion. The Bank of Japan was forced to lend Cosmo sufficient to cover the withdrawals. The Japanese Finance Ministry quickly produced a rescue plan to weaken the Yen and thereby boost exports and boost the economy. This consisted of intervention along with the US Federal Reserve to bolster the dollar. Japanese insurance companies will now be allowed to lend in foreign currencies. Accounting rules will be changed to "give Japanese insurers more flexible ways to account for foreign bond holdings and will also let them decide whether to report foreign exchange losses in their accounts . . . Such changes may help insurance companies out of their present fix but at the cost of making their accounts less transparent" (Economist, 5 August).
Banking crisis: Excessive lending in the 1980s is estimated to have left the country’s lenders with bad debts of ¥50,000 billion, almost £350 billion (Daily Telegraph, 1 August). Non-performing loans of Japanese banks, trusts and longterm credit banks at put at around ¥12 trillion (The Banker, July 1995). Problem loans, according to the Director of the Finance Banking Bureaux, amounted to about ¥40,000 billion (£290 billion) equal to almost 10 percent of Japan's gross domestic product (Financial Times, 7 July). In a recent speech the governor of the Bank of Japan stated that:
"the late 1920s Showa depression was triggered by the failure of a very small bank. The issue is not the size of the troubled institution but whether any unrest in the financial system could cause a chain reaction of deposit withdrawals throughout the system” (The Banker, July 1995).
Trade wars: These are not over. Following a last-minute compromise agreement over car imports into Japan from the United States, Kodak complained to the American trade authorities that the Japanese Fuji Film Company was obstructing Kodak’s access to the Japanese market. Trade wars ultimately have no victors. They can end in being extended to the battlefields.
The property bubble: Housing in Japan is estimated to be 19 times as expensive as similar properties in the United States and has been estimated at six times Japanese GDP. Cosmo quadrupled its lending in the space of two years by backing property developers. In December 1994, two other credit unions failed after their property-related loans turned sour (Economist, 5 August). Commercial property has fallen by 50 percent of its value since 1991.
Pension funds: Like other developed countries, Japan has an increasing number of aged people but on a scale that is larger than the UK and other European countries with rapidly increasing pension liabilities. The projected pay-outs have been based on assumptions made when the stock-market was far higher than at present and where commercial property values were booming along with their rentals. But in an economic environment where asset values are falling to a level that cannot cover the amounts borrowed against them the projected pension payouts become questionable. In short the welfare system in Japan is undergoing the same demise as it is elsewhere.
Unemployment: This has for the year 1994 increased to 2.94 percent
Interest rates: The recent cut in the Japanese discount rate to a record low of one percent in the hope of stimulating the economy and the stock-market has had no lasting effect. The Nikkei Dow has lost two-thirds of its value in the last five years. Japanese banks enter a large number of their share holdings at their acquisition value which means that with the fall in the Japanese stock-market they are worth less than the balance sheets imply.
Apart from the previous six attempts since 1992 to prop up the Japanese economy with tax cuts, public spending injections even to the extent of getting the postal savings institute to help by investing in the stock-market all have been of no avail. Why should this latest package of measures announced after the Cosmo collapse be anymore effective? Japan’s problems are deep-seated and long-standing. The present scenario is similar to the l929-30s in the United States.
Japan’s problems cannot be viewed in isolation from the rest of the world economy. A full-blown slump in Japan could have knock-on effect by disruption of capital flows if the Japanese overseas investors start withdrawing their assets from overseas. There is also the consequences of lessened demand for imports.
Once again the financial commentators are suggesting that Japan has reached a point where recovery is the only possible outcome of the recent rescue attempts by the Japanese powers-that-be. We have no hesitation in rejecting these arguments. The worsening problems described above are inherent to the capitalist mode of production. Credit crises, trade wars and the problems dealt with above are inevitable in a system where competing capitalist powers struggle for market dominance in their relentless drive for profit.
Terry Lawlor
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