Japan's economic misery The second biggest economy in the world is in crisis, despite a burgeoning trade surplus, and a government determined to give money away. Dave Packer Britain's serious financial press is not fooled by the temporary recovery of share prices to their August levels and fresh talk about overcoming the crisis.
The Economist has been warning for months that much of the agony of Asia will spread to the rest of the world economy. It does not blame the problem on overproduction or excess capacity or supply, which it considers "mainly bunk". As a champion of free market capitalism it riles against the idea "that capitalism has somehow fixed things so that the world's capacity to produce has overtaken its willingness to consume."
As a neo-liberal magazine, obsessed with the money supply, The Economist's editorials consider that the Japanese crisis is mainly due to "bank lending that is incompetent, reckless or downright corrupt." There is a mountain of bad debt. It is already an ugly sight, and there is worse to come."
Japanese banks are certainly mired in a crisis of bad, unrecoverable loans, with increasing numbers of its borrowers defaulting. The government stated this much when it refused to reveal the result of a government audit into the state of its biggest banks.
These banks are sitting on suspect loans of ·87-140 trillion (SUS600-1000 billion). The bulk of the collateral is land - and as land prices are still spiralling downward, so is the amount the banks can reasonably hope to recover:
Land prices in Japan have fallen for the sixth year in a row. Already many of the country's nineteen largest banks are probably insolvent. Controversial rescue packages for the Long Term Credit Bank of Japan, and other big banks, pumping in huge amounts of new capital, are seen as wavs to stave off wider economic
This has frightening social and political implications for the Japanese bourgeoisie. The Japanese social contract, with its "jobs for life" promise for key (male) workers still has a powerful ideological and material attraction. Allowing unemployment to rise to its "natural" level might unleash a very Japanese class struggle.
In August 1998 The Economist estimated that at least 15 of the 119 construction firms listed on the first section of the Tokyo Stock Exchange are effectively bankrupt. The value of their land holdings, bought at the height of the property bubble, had plummeted and loans guaranteed to subsidiaries and property developers have turned sour.
Big general contractors and huge employers, such as Fujita, Kumagai Gumi, Tokyu and Aoki, all have suspect liabilities. Costly rescue packages, which eat into reserves and push up government borrowing are seen as the only way to A mature crisis
However, Japan's disastrous problems are not just due to an explosion of debt. This is only a symptom. The underlying crisis is to be found in the so-called real economy, in a crisis of over-accumu-
Gretchen Morganson of the New York Times reported as early as June, 1998 that inventories in Japanese warehouses had risen to double the amount piled up in the recession of 1991-2, a recession from which Japan never really
In August 1998, Japan's Economic Planning Agency reported that seven of the country's ten regions were officially in a slump, and two others were stagnant. The agency surveyed 4,500 big Japanese companies, who reported that they plan to cut foreign direct investment by 57% this year to ·1.2 trillion ($8.3 billion). At its peak, in 1990, investment reached ·4.2 trillion. All these figure are being continually revised downwards.
The end of the Japanese miracle can be dated as far back as 1985. In that year the USA responded to its disastrous trade deficit with Japan by imposing the Plaza Accord. This forced the Japanese government to raise the value of the Yen against the US dollar. By 1990, this had led to a 40% reflation of the Yen against
International Viewpoint #308 February 1999 17