> The biggest culprit in the current account deficit was a continuing
> imbalance in goods and services, as a hoped-for increase in exports
> to recovering Asian economies failed to materialise.
Which says quite a lot about the weakness of the Asian recovery, no?
The massive infusion of public money into the Japanese banking system has not reignited private lending (recall that by some measures capital spending continues to plunge in Japan!); it has only inflated the bubble since banks are buying low interest govt bonds with that bail out money to allow the govt to maintain deficit spending. This is no recovery at all; it's a huge pyramid scheme in which some short term profits can be made. If it comes down, Japan will have to repatriate capital from the US to recapitalize their banks, plunging the US stock market and the world economy into depression (of course diminished US profits could engender a liquidity preference expressed in dollars first).
>From Japan's Banks Remain a Drag on Economic Recovery By George Melloan
09/14/1999 The Wall Street Journal Europe
Page 15 (Copyright (c) 1999, Dow Jones & Company, Inc.)
According to Mr. Yanagisawa, Japan's big banks have disposed of $541 billion in bad loans since 1990. At last count, their stock of "non-performing" loans was $272 billion, meaning loans that have
been delinquent for three months or more. So there does seem to be progress in tidying up the books, although this has been achieved at a considerable expense to Japanese taxpayers.
Over $180 billion has been pumped into the banks during the current bailout and no doubt considerably more will be needed before the mess is cleaned up. Mr. Yanagisawa is encouraging restructuring and has seemed to look with favor on the announcement last month that Industrial Bank
of Japan, Dai-Ichi Kangyo Bank and Fuji Bank will join forces under a holding company arrangement next year, forming the world's largest bank. But then optimism is demanded. The government has a $23 billion combined investment in the three.
Its total investment in the big banks is $82 billion, most of it in convertible preferred stock but some in convertible debentures. Mr. Yanagisawa says the government has no intention of exercising its
conversion privileges, so this is not a back door takeover of the banks. The investment is structured so that the banks pay less in dividends to the government than they earn on investments in government bonds. Because of the incentives to buy bonds, a lot of money recycles back to the
government to help it support the huge national debt it has racked up following Washington's economic stimulus advice.
Since government bonds carry a zero risk rating under the international (BIS) risk-based capital adequacy rules, the banks preserve their crucial capital-to-asset ratios by making such investments.
Mr. Yanagisawa says the average ratio for the 17 leading banks is 11.9% now, well above the BIS 8% standard. But investing in government bonds doesn't do all that much for the economy.
The FRC chairman says that private loan portfolios of the major banks are still shrinking, partly because major Japanese borrowers are trying to reduce their indebtedness. The government is trying to encourage lending to small and medium sized companies, but of course those companies, many of which supply Japan's industrial giants, are not likely to borrow heavily until they have a greater need for working capital or expansion. --- rb