Thanks for your exposition on Japan. It conforms with much I have read elsewhere. A couple of questions and comments.
1. Roy C. Smith in his book on US banking, "Comeback," has a long section on Japan and mentions that the Keiretsu are themselves the major banks of Japan and in turn have special relationships with the Bank of Japan. He furthermore mentions that the Bank of Japan's short term loans to the keiretsu were something like 125% of deposits, which he doesn't explain in any detail. Nonetheless, my interpretation is that much of the "normal growth" of M1 in the Japanese system is handled through discount loans to the keiretsu banks which pass these through to their subsidiaries. By contrast, in the U.S. system, M1 growth is typically handled through the "open market" purchase of securities which does not favor any particular industrial/banking group as such markets are vast, deep, with many players. Discount window operations are much more limited in the US. Another implication of your (and R Smith's) analysis is that a lot of industrial financing is carried out with short term loans that are continually "rolled over." This suggests that projects can be financed at lower cost, as short rates are generally lower than long ones. Comments?
2. Your optimism about the future of the Japanese Yen is I think overtstated. If this were a gold economy, yes, the Yen would be on its way. But in the non-gold era the "asset" underlying the Japanese trade surplus is the U.S. dollar, which is a liability of the US central bank (and the economy as a whole). To make the matter short: if the US economy dollar tanks so too do all the dollar denominated assets in Japanese banks. I don't think you could have a collapse of the US dollar without collapsing the substnatial assets which play a major role in the Japanese banking system. Comments?
-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222
Fax 518-442-5298