Syndicated News from Japan
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Results 1 - 10 of Headlines for Japan
Wednesday, January 28th, 2004
: RCN Administrator
The Japanese have paid tribal leaders near the southern Iraqi city of As Samawa a lump sum of 10 billion yen ($95 million) to provide security for Japanese forces that will soon be stationed there. -- Tokyo sees the "investment" as more than a simple bribe to ensure that Japanese soldiers are not shot, but rather as the first step toward resurrecting Japanese claims to Iraqi oil.
News broke Jan. 26 that Japan is paying local tribes in and
around the southern Iraqi city of As Samawa 10 billion yen ($95
million) in a lump sum to purchase security for its incoming
1,000-strong security force.
While a portion of the cash undoubtedly will go toward security,
the primary reason for cutting the check -- and deploying to Iraq
in the first place -- is to revive Japanese economic interests in
The media are having fun with the report; most articles about the
issue are rather tongue-in-cheek commentaries about how Japan is
paying the Iraqis not to attack them. Prime Minister Junichiro
Koizumi's office did little to dispel this impression with a Jan.
26 release stating, "It is rather cheap if we can buy security
for our soldiers with that amount of money."
The news reports are missing the point.
Certainly Tokyo is casualty-averse. The ongoing Japanese
deployment -- an advance contingent already is in As Samawa, and
the rest are expected to arrive by early February at the latest -
- will be the first Japanese troops in a "combat zone" since
World War II. The bulk of the Japanese population is opposed to
the deployment and opposition leaders have called for Koizumi to
step down for violating the constitution, which expressly forbids
offensive military actions.
But, as yet, not a single attack on coalition forces in As Samawa
has injured -- much less killed -- one foreign soldier. There is
far more to this than Tokyo simply trying to purchase the good
publicity that comes from a lack of body bags.
The United States has enunciated clearly that states with
minimal-to-no presence in Iraq will have minimal-to-no
involvement in the country's reconstruction and gain minimal-to-
no benefit from the country's oil. Washington has, in effect,
bluntly informed everyone that if countries want to protect -- or
even have -- commercial interests in Iraq, they will need to
station forces there because the United States will not protect
their interests for them. This, of course, encourages other
countries to sign on to the U.S. vision of a new Iraq, and with
every country that decides it wants a piece of the pie, the
United States gets a new foreign force to assist with the
Japan is sending 1,000 troops into a city with no serious
security concerns and spending $95 million to buy protection for
This begs the question: What is Japan buying?
A closer reading of Koizumi's statement gives an idea of what
Japan's real interest might be. It states, "It is more important
for the Japanese government to make one-time payments to the
leaders than to pay them a salary. That will help their local
economy and benefit Japan's foreign policy toward the new Iraq."
First of all, one-time payments do not purchase continual
protection; they acquire something more concrete. Second, Japan's
plans include involvement in the local economy and hold
ramifications for overall Japanese policy toward Iraq.
That brings us to the crux of the issue: oil.
For Japan, garnering oil is a critical consideration. Energy-poor
Japan imports more than 99 percent of the 5.2 million barrels per
day of the crude it uses. A Japanese consortium representing such
big names as Mitsubishi, Mitsui, Marabena, Itochu, Tomen,
Chiyoda, JGC and Toyo already is negotiating with the Iraqi
provisional government over staking claims to Iraqi oil fields.
And indications are that Tokyo has placed its "security fee" in
just the right hands. In 2003, local Iraqi tribal sheikh Abdul
Ameer al-Rikaabi, whose al-Rikaab tribe remains the pre-eminent
powerbroker in the area around As Samawa and An Nasiriyah,
visited Tokyo as Japan was deciding where its troops should be
stationed. According to an Iraqi Stratfor source in the United
States, al-Rikaabi once counted himself among former leader
Saddam Hussein's most powerful allies, but after a falling out
became a staunch anti-Baathist.
For Japan, the foray to As Samawa will be a return to Iraq, not a
completely fresh start. In the 1980s Iraq was a leading source
for Japan's all-important crude imports and -- just before the
1990-1991 Gulf crisis shut off the flow -- Japan was in the final
stages of negotiating access to Iraq's billion-barrel Al Ghavraf
field. Initial expectations -- with the technology available in
the 1980s -- were that the field would produce 130,000 barrels
Less than 40 miles due east of As Samawa.
Monday, February 3rd, 2003
: RCN Administrator
"The Japanese people forever renounce war as a sovereign right of the nation and the threat or use of force as means of settling international disputes. 2) In order to accomplish the aim of the preceding paragraph, land, sea and air forces, as well as other war potential, will never be maintained. The right of belligerency of the state will not be recognized." -- The Constitution of Japan (1946), Chapter II: Renunciation of War, Article 9.
Although this belief has dominated Japanese military thinking since the constitution’s inception, debate has increased within the government and general populace over the last few years about whether the country’s Self-Defense Forces should take a more active role. Most recently, Foreign Minister Yoriko Kawaguchi has suggested in an article to be published Feb. 5 in Japanese monthly Ronza that SDF participation in international peacemaking operations does not necessarily contradict the constitution.
"Depending on the duties, I do not think our constitution bans participation of the SDF or cooperation toward multinational forces that are established in line with decisions the United Nations makes," Kawaguchi said. While Japan already participates in peacekeeping operations, the rules governing the SDF only allow Tokyo to dispatch forces to areas where peace accords have been signed already and the host nation has invited the peacekeepers.
Her comments are another trial balloon floated by the Koizumi government in its efforts to reinterpret the role of Japanese forces. While Tokyo has not yet abandoned its constitution, it continues to push the boundaries of acceptable actions.
When Prime Minister Junichiro Koizumi came to office in 2001, he promised radical economic reforms and hinted at a redefinition of the scope and role of Japan’s defense forces. Although his first promise proved little more than political rhetoric, or at best wishful thinking, his latter program continues to move forward. Koizumi has pressed through expanded roles for the defense forces, both in domestic security and in their participation in the U.S.-led war against terrorism.
And it is that anti-terrorism push -- even more than North Korea’s 1998 missile launch -- that has offered the Japanese military the opportunity to move faster in the last year than in all of the previous decade.
Kawaguchi’s comments, then, fit within the general trend of bringing the future of Japan’s security into public discourse. Issues that once were taboo -- coordination of Japan’s national defense and domestic security forces, the idea of pre-emptive strikes as an act of self-defense, the nuclearization of Japan’s forces -- are becoming acceptable topics of conversation. And this, in turn, has created an atmosphere where real adjustments to Japan’s restraints on its defense forces are possible.
Kawaguchi is not the only one expressing such opinions. As the world focuses on Afghanistan and now Iraq, Japan is steadily moving to join the ranks of "normal" nations, reassessing its restrictions on its own defense forces and paving the way for the admission that Japan not only needs, but in reality already has, a true military.
Wednesday, January 29th, 2003
: RCN Administrator
Japan Teeters on Edge of Deflationary Abyss?
A bank operating in Japan has issued the country’s first
negative-interest loan, indicating that Japan’s deflationary spiral likely will continue.
ABN Amro issued Japan’s first negative-interest loan on Jan. 24 to Societe Generale and BNP. At less than 0.01-percent interest, the borrowers are required to pay back less than the 15 billion yen ($125 million) they actually borrowed.
Stratfor asserted previously that the Sept. 11 attacks had damaged Japan’s long-term economic picture so badly that the country would find it impossible to recover without a massive social upheaval that could destroy Japan’s current social contract. Should Japanese corporations accept negative interest
in their own operations, the country’s deflation will worsen. With the Japanese government already occasionally issuing bonds that earn zero-percent interest, negative-interest loans very well could be a step toward economic oblivion.
Deflation can take many forms, but it usually results from excess supply coupled with inadequate demand. In some cases, deflation can be healthy for an economy. For example, the United States has experienced some deflationary effects over the past decade as trade liberalization allowed more and cheaper Asian goods to
compete on the U.S. market. The stiff competition ensured that Asian suppliers continued to innovate in a virtuous circle of new technological development and implementation. This enhanced U.S. economic health while keeping demand high and contributing to high U.S. productivity levels.
Japan, on the other hand, has experienced a different type of deflation.
Japanese corporate expansion is based largely on market share, not profitability. This encouraged the development of massive over-capacity, driving prices down in a manner similar to the United States’ own deflationary pressures. But Japan lacked the consumer optimism that fueled the 1990s boom in the United
States. Instead, Japan’s economy sank into repeated recessions, but maintained high inventories, ensuring that companies couldn’t claw their way into profitability. A social stigma against layoffs kept many production lines open despite stubbornly sluggish demand, compounding the oversupply problem.
This built a public perception that prices would gradually
decline with time. Consumers began deferring purchases on the correct expectation that prices would continue to decline. That in turn starved Japanese firms of the income they needed to invest in new products or expand their businesses, resulting in yet more of the same product and compounding the oversupply --and deflation -- problems.
There are a number of ways to get out of the deflation rut, but nearly all would necessitate a surge in consumer demand to drive prices up. The Japanese government has been less than helpful in this manner. Its deficit spending has never been aggressive enough -- or focused in the right direction -- to create sustained growth. One option that might have worked before would have been driving the yen down with a dramatic currency printing. Such an action would force competitive devaluations across Asia that could trigger a repeat of the 1998 financial crisis. It also would -- at least in theory -- force consumers to spend because
they fear a cheaper yen will eat away at the value of their savings.
That is no longer a realistic option. The beginning of negative-interest loans indicates that Japan’s corporations have succumbed to the same mindset as Japanese consumers. If credit becomes cheap enough for negative interest, then it makes more sense for
companies either to add to their already sky-high debt to fund operations instead of seeking profitability and financial solvency. Congruently, companies also will put off expansion plans in the hopes of even better credit terms in the future.
The three pillars of the Japanese economy -- consumers, business and the government -- are stagnant. Consumer confidence, beset by rising unemployment and shrinking incomes, cannot recover.
Companies are mired in debt and plagued by a financial system that cannot be reformed without causing its collapse. Meanwhile, the government has engaged in so much deficit spending since the end of the Cold War -- about 119 trillion yen ($1 trillion) -- that more spending is needed simply to keep the economy afloat.
Overcoming the downfall of any these three economic pillars would be possible, but overcoming all three against the backdrop of activity-sapping deflation -- now in its 40th month -- is unlikely.
Sunday, November 17th, 2002
: RCN Administrator
Japanese Ground Self Defense Force (GSDF) units held joint exercises with police units in Hokkaido on Nov. 18, Japan’s Kyodo News reported. The exercise in defending Japan from armed infiltrators was the first of its kind in the country. Although this primarily was a command post exercise, the next phase will include field exercises.
The drill marks another step in the evolution of the GSDF and in Japan’s defense forces as a whole. Since the end of the Cold War, Japan’s military has struggled to redefine its role, which formerly was to guard Japan against a Soviet attack. Several events over the past decade have influenced the domestic debate over the SDF’s role and have contributed to changes in the SDF mission and organization. But as Japan’s defense force takes concrete steps toward preparing for new contingencies, it is outpacing the political consensus.
Of the many defining moments of the past 10 years, the first was the Gulf War. Tokyo was faced with two issues: whether to supply SDF assets to support the coalition effort and what to do about the 500 Japanese citizens detained in Iraq as shields against the attack. Although Tokyo sent minesweepers as part of the international coalition, the government was slow to lend physical support and thus incurred criticism for not pulling its weight.
The thinking about the structure of the SDF further evolved with the 1996 takeover of the Japanese Embassy in Lima, Peru. That incident convinced Tokyo that the SDF should find ways to prepare for hostage situations even far from Japan’s shores. The 1999 kidnapping of several Japanese geologists in Kyrgyzstan only strengthened this view.
Two issues in Southeast Asia molded the debate in a slightly different way. First, there was a rise in piracy in the waters around Indonesia, a strategic shipping lane for most of Japan’s oil supplies. Second, instability in Indonesia required Japan to take precautions for the evacuation of its citizens. Both of these incidents led to greater SDF involvement in the region -- from joint patrols of the Strait of Malacca to agreements with Singapore for the use of air and naval facilities during emergency operations.
Concerns over North Korea -- ranging from its missile program to infiltrations into South Korea to frequent intrusions of suspected North Korean spy ships into Japanese waters -- further shifted the internal dialogue. Tokyo embraced the idea of cooperating with the United States on missile defense, despite initial hesitation. The SDF also began tightening its relationship with the Japanese coast guard and police, opening better lines of communication and creating protocols for closer cooperation.
But it was the Sept. 11, 2001, attacks on the United States and the subsequent warnings of a global terrorist network that added the final impetus to changes in Japan’s military. Prime Minister Junichiro Koizumi rapidly seized upon the fear of terrorism to press through a series of changes in the role and scope of the SDF -- though as the furor died down in Japan, his subsequent efforts have been rebuffed or at least slowed by internal debate.
But while the political protocols and agreements still are being argued, the SDF has taken concrete steps to redefine its own role -- and to be prepared when the political determination comes around.
The joint GSDF-police exercises are only the first in a series of similar regional exercises, and future joint training likely will be more involved. In addition, in late September and early October, Japanese forces traveled to Hawaii to train with U.S. forces in urban combat, and the GSDF intends to establish more of its own similar training schools. The GSDF also plans to create an anti-terrorism force of 300 soldiers, to be stationed in Chiba Prefecture.
The Maritime Self Defense Force and Air Self Defense Force also are altering their training and weapons acquisitions. The MSDF is looking to deploy additional P-3C surveillance aircraft along the west coast and has updated protocols covering coordination with the coast guard and permissions to fire upon infiltrating ships.
For its part, the ASDF is seeking an additional aerial refueling aircraft in its next budget and again is trying to gain permission to participate in joint exercises with U.S. forces in Alaska -- exercises that involve in-air refueling, something from which Japan formerly shied away because it could be considered an offensive rather than defensive capability.
In all, the Japanese armed services already have begun transforming themselves to be better prepared for non-traditional contingencies, including infiltrations, urban combat and piracy. The current GSDF training might lead to the possibility of Japanese forces participating in seek-and-destroy missions against guerrillas and militants -- not only in Japan, but also overseas -- should the need and political will arise.
And political will, rather than physical capability, remains the limiting factor. While Japanese defense forces train and arm for the future, they remain tethered to a complicated political process that must take place before they are dispatched. But that, too, could fade as the internal mood favoring constitutional change grows.
Friday, November 1st, 2002
: RCN Administrator
Japanese officials reportedly plan to propose the establishment of a joint counterterrorism task force at the upcoming ASEAN summit. The proposal would increase Japan’s security cooperation with ASEAN, which already covers anti-piracy measures. These could be the early steps toward a more multilateral security organization -- which would be a major step for both Tokyo and ASEAN.
Japanese Prime Minister Junichiro Koizumi will propose a joint ASEAN-Japan task force for fighting terrorism at the annual Association of Southeast Asian Nations summit in Phnom Penh on Nov. 5, according to diplomatic sources cited by Kyodo News agency. The task force also would cover other non-traditional security threats, including environmental degradation and contagious diseases like AIDS.
Koizumi’s proposal is an expansion of the already successful anti-piracy efforts carried out by Japan and ASEAN nations in the Strait of Malacca and the South China Sea. But as Tokyo and ASEAN move closer together on security issues, they could be laying the groundwork for a multilateral law enforcement or defense organization. This would mark a major step for all involved and would raise new questions about the balance of power in East Asia.
Japan issued its latest Defense White Paper in August, calling for greater regional cooperation in fighting terrorism. Following the Sept. 11, 2001, attacks in the United States, Japan experienced a period of rapid movement in redefining the role and status of its Self-Defense Forces (SDF), particularly in regard to terrorism and other non-traditional threats. Tokyo expanded the boundaries of SDF cooperation with U.S. and other international forces in the fight against terrorism, and also stepped up its coordination with ASEAN on anti-piracy measures.
Tokyo now seeks to take this cooperation a step further -- codifying the coordination through the formation of a regional task force. While the details will not be worked out until the ASEAN summit, it appears this early task force will be more of a committee for intelligence- and information sharing than a joint investigative or enforcement body. But this might be the first step toward broader cooperation; regional anti-piracy efforts evolved from information sharing to joint maritime patrols.
For Japan and ASEAN, such moves represent substantial shifts from previous policies and actions. ASEAN has struggled to move beyond its economic focus by establishing the ASEAN Regional Forum (ARF), a security dialogue body that includes several other regional representatives including Japan, China and the United States. Since the 1997 regional economic crisis, and particularly since the Sept. 11 attacks, some ASEAN states have pushed for an expanded role for the ARF. They want to make it less of a talk shop and more of an action center, but internal bickering and historical distrust have held up any movement in this direction.
Thus, the recent announcement by Kuala Lumpur and Washington that Malaysia would host a regional counterterrorism center in cooperation with the United States came as a blow to ASEAN and the rest of the Asia-Pacific region, who have been unable to act on their own without U.S. intervention. Japan’s plans to create a joint anti-terrorism task force with ASEAN, then, brings the focus and involvement back into Asia, allowing the Asian nations to take care of themselves.
For the plan to work, however, the countries will find it imperative to move beyond their ingrained policies of non-interference and toward a proactive policy -- one that might lead to a few countries stepping on others’ toes. This would be a major step for ASEAN, but one that several members -- including Malaysia, Singapore and the Philippines -- appear to be heading toward anyway. And for Tokyo, this would mark another step in the nation’s steady attempts to redefine its security role in the region.
Perhaps more important, Tokyo’s proposal could advance the case for Japan to step out from under the U.S. wing and begin taking responsibility for its own security concerns.
Wednesday, September 18th, 2002
: RCN Administrator
Bank of Japan Governor Masaru Hayami said Sept. 18 that he will order his institution to begin purchasing stock holdings from banks. The Nikkei, Japan’s most popular stock index, registered a 2.1 percent gain on the news.
The move will undermine the effectiveness of the BOJ, the Japanese equivalent of the U.S. Federal Reserve. But more important, it signals that Hayami -- Tokyo’s most important advocate for economic reform -- no longer has faith that the Japanese banking sector will recover.
Without a functional banking sector, the entire Japanese economy would not be far from collapse.
Japan’s post-war economic development was heavily directed by Tokyo. Government planners urged banks to lend to strategic sectors, without regard for profits. That chopped into the banks’ revenues and forced them to invest heavily in shares to help bolster their profits. The process was sustainable as long as the supported industries remained semi-viable and stock prices continued growing.
Both trends ended when the Japanese bubble burst in the early 1990s. The impact destroyed banks’ profit margins and their willingness to risk capital on new loans. The institutions were placed in the awkward position of needing to continue loans to -- and buying shares from -- defunct enterprises to keep their loan portfolios from becoming entirely non-performing.
Since political leaders were unwilling to inflict the necessary pain and clean out the system, the entire banking sector rotted to the core. By some measures, Japanese banks now hold as much as $2 trillion in bad loans, and their stock holdings are worth $330 billion -- less than a quarter of their value before the bubble popped.
Hayami’s solution is to have the BOJ purchase these devalued shares to boost the banks’ capital holdings and reduce their concerns about the underperforming Nikkei. "The bank will buy directly from financial institutions," he said. "We want to help them reduce the impact of falling stocks."
The criticism from analysts the world over has been scathing, and rightly so. A straightforward stock purchase will do absolutely nothing to encourage better behavior, and it is highly likely that many banks will simply reinvest the new cash in the same companies they are keeping alive with drip-feed loans. And the move will weaken the BOJ’s balance sheet drastically -- never a good thing for a country’s financial guarantor. Critics also charge that having a country’s central bank reduce itself to base stock market manipulation is not only unwise but also a disturbing sign that Japan’s central bank has lost its independence. A central bank without freedom reflects dominant political trends and loses the ability to shepherd an economy to health.
The critics are right on the first point, but wrong on the second. Most government policy makers want an outright stock bailout. Hayami doesn’t: His actions achieve a bailout, but as a side-effect of efforts to assist the banks -- and that’s an important distinction.
However, a look at Hayami’s motivations signal that something much worse than merely caving to administration pressure is occurring.
The Japanese fiscal half-year ends Sept. 30. On that day, Japanese banks will close their books and check their valuations. With the Nikkei edging 20-year lows, many banks are in danger of dipping below capital adequacy minimums. If that happens, most would be unable to engage in domestic lending -- many already are barred from foreign lending because international banking laws are stronger than those in Japan. Hayami’s move has little to do with Tokyo’s efforts to produce a veneer of progress; it is designed to avoid a banking collapse.
When viewed in this light, it becomes apparent that Hayami has lost faith in the Japanese system’s ability to salvage itself. He fully understands the implications of his actions and the damage they will cause the BOJ, but he has come to realize that the rot in Japan’s financial sector is now irreparable. All the BOJ governor can do now is to try and slow the steepening decline.
Sunday, September 15th, 2002
: RCN Administrator
THE Japanese Prime Minister will be risking his political career when he flies to Pyongyang tomorrow for a meeting with Kim Jong Il, the North Korean leader.
For Junichiro Koizumo, already an unconventional leader, the meeting is the most daring of political initiatives. If he makes a breakthrough with a regime that has defied all attempts to lure it out of isolation, he will earn an important place in his country’s history; but the price of failure with a state that President Bush says is part of an “axis of evil” will be equally high.
Mr Koizumi’s Japan has no diplomatic relations with Pyongyang but a host of long-standing points of friction. These range from the kidnapping of Japanese nationals to a hostility that dates from Japan’s colonial occupation of the north until the end of the Second World War. He is driven by the need to try to overcome North Korean hostility to Japan and South Korea as a precursor to any kind of reunification, to ensure access to the country’s wealth of natural resources and to try to stay ahead of the US in the diplomatic race.
Mr Kim will aim his main message — “We’re no Iraq” — at Washington when he meets Mr Koizumi. Masao Okonogi, of Keio University, said: “Pyongyang does not want to become a second Iraq and they want to resume talks with the United States. That’s their main goal. If Koizumi comes home with nothing . . . Japan will harden its stance and the United States will decide there is no point in talking to North Korea.”
In a rare interview published on Saturday, Mr Kim told the Kyodo news agency that the talks would be an “epoch-making chance” to normalise ties with Japan. For Mr Kim, who appears to have embarked on a tentative programme of economic reform and diplomatic outreach, a successful summit could bring big rewards. Among the potential benefits is much-needed economic aid from Tokyo.
Monday, August 19th, 2002
: RCN Administrator
Standard and Poor’s warned Aug. 19 that Japan risked another credit rating cut due to Japanese Prime Minister Junichiro Koizumi’s inability to follow through with promised economic reforms. A look at which reforms were dumped shows that Koizumi is well on his way to repeating the mistakes of his predecessors.
Credit ratings agency Standard and Poor’s warned Japanese leaders Aug. 19 that their country risked yet another credit rating cut due to the government’s recent backtracking on economic reform pledges. The S&P’s last cut in April 2002 reduced Japan’s long-term credit rating to AA-. A new cut would drop Japan to A+, putting it at the same level as Botswana and Kuwait.
Japanese Prime Minister Junichiro Koizumi’s abandonment of reforms -- such as the removal in August of a 30 trillion yen ($250 billion) cap on government bond issuance for the 2003 fiscal year budget -- is not exactly shocking. He is from the same wing of the ruling Liberal Democratic Party as his incompetent predecessor, Yoshiro Mori, and his Cabinet contains several LDP dinosaurs that have expertly mismanaged the Japanese economy for years.
Even if Koizumi’s stated desires to reform the economy were genuine, Japan’s political system has institutionalized so many power groups that meaningful progress is impossible. At the end of the day -- or the end of Koizumi’s tenure -- his most meaningful contribution to the Japanese economy may well be the many posters and T-shirts bearing his likeness that were sold at the height of his popularity.
Since coming to power in April 2001, Koizumi has not lived up to his reputation as a "maverick" or as a reformer. A quick overview shows where his pledges have fallen short and what that means for the world’s second-largest economy.
One of Koizumi’s biggest promises was to get government deficit spending under control. Japan’s primary method of countering its decade-long economic slump has been to spend mountains of cash on infrastructure projects, which is unfortunately similar to Japanese development strategies of the 1950s, 1960s and 1970s. But the country really didn’t need any more infrastructure, so the 1990s deficit spending boom has mainly resulted in multi-lane highways and dams being built in areas with no people or needs for hydropower or flood control.
The fact that Koizumi’s anti-debt promise never got off the ground was due in part to opposition from the country’s bloated construction industry, which constitutes about 10 percent of the non-agricultural workforce. In the end the prime minister never pledged to eliminate wasteful spending, only to limit it to 30 trillion yen ($250 billion), about 6.3 percent of GDP. Next year’s budget already calls for new deficit spending of 35 trillion yen ($295 billion), in addition to new bonds to cover those reaching maturity, which will total about another 37 trillion yen ($310 billion).
Postal Savings Competition
The Japanese postal system runs the nation’s largest personal savings operations, in addition to handling the mail. Centralizing capital was essential in the days when Japan needed directed investment to recover from World War II. However, leaving postal savings in government hands has allowed Tokyo to dip into the money whenever it needs to fund other government measures, including pork-barrel projects in rural constituencies.
Ending the government monopoly over postal savings, as Koizumi had promised, would have freed up as much as 255 trillion yen ($2.15 trillion) for private development. Instead, to keep out foreign competition, the government has piled on investment restrictions so severe that few if any Japanese firms will participate in what could have been a lucrative market. Under Tokyo’s direction, postal savings will continue to be placed in government bonds that, while guaranteed by the "faith and good credit" of the Japanese government, have yields that are now, in essence, zero percent.
The only portion of the Japanese economy doing even marginally well is the export-oriented sector. Therefore, pushing the yen down has been a central plank of government policy for years. With the U.S. recovery losing speed, Japanese policymakers fear, quite correctly, that Japan is about to have another recession -- its fifth since 1990.
Zembei Mizoguchi, director-general of the Finance Ministry’s International Bureau, said Aug. 20 that the yen is too strong, an unsubtle hint that yet another series of currency interventions is about to begin. Such interventions may help the bottom line of a narrow sector of the Japanese economy responsible for about 10 percent of GDP, but will do nothing to boost the strength, flexibility or resiliency of the overall economy.
As of the end of the Japanese fiscal year on March 31, 2003, all deposits of more than 10 million yen ($84,000) -- totaling some 300 trillion yen ($2.5 trillion) -- were set to lose their federal deposit insurance. Considering the atrocious state of Japan’s banks -- beset by numerous bad loans and an inability to make new ones -- this reform would have led to a mass capital flight either overseas or under mattresses. So Koizumi either exempted banks from the change altogether or watered down the conditions to keep the status quo.
Disposal of Bad Loans
The willingness to give way on the deposit insurance issue also paves the way for a policy cave on Koizumi’s final major reform promise: forcing banks to dispose of their bad loans by 2004. The problem is that the banks are already technically insolvent.
Since the government directed past (and some would argue present) infrastructure development, banks granted loans with little concern for projects’ profitability. Yet Japan’s unwillingness to force defunct firms into bankruptcy has only encouraged banks -- with an unofficial wink from regulators -- to grant dead firms fresh credit. The result is an ever-growing mountain of bad loans.
Now banks are terrified of granting new loans to new clients lest they compound the problem, but they have to keep failing clients on life support or suffer a complete collapse of their loan portfolios. Consequently, overall lending has not risen in 81 months.
Japan’s Financial Services Agency estimates that those dud loans now total 52.4 trillion yen ($441 billion), up 22 percent from a year earlier. Clearer-eyed independent estimates put the real number closer to 240 trillion yen ($2 trillion). Koizumi has a choice: either force banks to dispose of the bad loans and trigger a banking collapse, or wriggle out of yet another promise.
Judging by his past performance, Koizumi looks set to follow the path of his predecessors and simply continue managing Japan’s slow-motion economic implosion.
Wednesday, August 14th, 2002
: RCN Administrator
.The Japanese Defense Agency Aug. 14 announced the eighth case in five months of apparent sabotage to a Self Defense Forces aircraft. According to a Kyodo News report, a connector pin for electrical wiring on the engine of an F-15DJ fighter jet was bent intentionally sometime after Aug. 8 while the engine was undergoing maintenance at the Mitsubishi Heavy Industries (MHI) Komaki Minami plant in Nagoya. Between April and July, six F-4EJ fighters and one RF-4E reconnaissance aircraft were damaged at the same facility.
In addition, Mitsubishi Heavy Industries’ Nagoya facilities -- which also are used to work on Japan’s H-2 rockets -- were the sight of a November 2001 theft of several computers, one of which contained data about Japan’s next-generation fighter aircraft. In both cases of aircraft tampering and computer theft, there were no reported signs of forced entry, which suggests an inside job. While little progress has been made on the cases, the incidents may represent a backlash against Japan’s economic problems or military policies.
Mitsubishi is the key contractor for several Japanese defense force aircraft, from fighters and reconnaissance planes to anti-submarine warfare helicopters, and MHI is the main contractor for Japan’s Patriot missiles and several other missile systems. Its Nagoya facilities are at the heart of Japan’s defense aerospace industry, and the Komaki Minami plant is the primary maintenance facility for Japan’s 45 F-15DJ fighters, 104 F-4 fighters and 27 RF-4E reconnaissance aircraft.
Japan’s Asahi newspaper reported that around 40 F-4s rotate through the plant every year. In addition, other MHI facilities in Nagoya are responsible for Japan’s H-2 rockets, the core of Japan’s civilian space program.
On Aug. 8 the Japanese Defense Agency revealed that seven aircraft in the No. 1 hangar at the Komaki Minami facility had been damaged intentionally between April and July. This is the same hangar in which the latest incident occurred.
Although the theft of the computers from Nagoya in November 2001 could have been a case of someone trying to fence electronics for money, the damage to the eight aircraft likely was the result of a different motive. It is possible that it was the work of a disgruntled employee. But a more troubling scenario for Japan’s defense industry is that this was the work of someone opposed to Tokyo’s changing defense policies.
Since Sept. 11 the Japanese government has accelerated an ongoing evolution of its defense doctrine, leading Japan down a path to finally break free from its post-World War II pacifism. Rather than continue to struggle with what the Japanese defense forces cannot do, the government is seeking to redefine the issue and focus on what they can do -- and whether to move beyond the concept of "defense forces" and admit that Japan has a military, allowing future development from that standpoint.
In either case, Japan’s defense industry -- or at least Mitsubishi’s part of it -- appears to have a security problem. And if the motivation is truly to sabotage the entire Japanese defense program, rather than a single company or unit, it may only get worse.
Thursday, August 8th, 2002
: RCN Administrator
Japanese Prime Minister Junichiro Koizumi altered his banking "reform" plans Aug. 1 in a way that in essence waters down their impacts and imposes negative interest rates on savings accounts. He followed the move with a retraction of his previous pledge to limit Japan’s profligate deficit spending .
Under the original banking reform package, the government planned to end insurance guarantees on all deposits of more than 10 million yen ($83,000) starting on April 1, 2002. The plan as originally intended likely would have triggered an unravelling of the Japanese economy, but a recent loophole Koizumi inserted ensures a slower, less painful death.
At stake is 300 trillion yen ($2.5 trillion) in deposits. With the Japanese economy locked into a deflationary spiral, the end of deposit insurance would almost certainly collapse many of Japan’s already wobbly banks, particularly the smaller ones that would see many of their customers flee with their savings to larger, supposedly more stable banks. The international fallout also could be catastrophic, as a formal collapse of Japan’s banks -- along with the world’s second-largest economy -- could cause a panic that would make the 1997 Asian financial crisis look like small potatoes.
The financial system got a taste of what was coming when the reform was adopted April 1 for timed deposits. The day before the switchover, the total amount held in timed deposits, installment savings and loan trusts dropped 27 percent from a year ago, while deposits in ordinary savings accounts shot up 51 percent, according to the Bank of Japan. The key is that the first category of savings is rather illiquid, and most depositors were willing to take a financial hit when they switched over their accounts in order to keep government guarantees. Completely ending deposit insurance for demand deposits -- standard savings accounts -- would provoke a much sharper and more damaging response.
Officially, Koizumi says the full reform will still be implemented as planned, but in traditional Japanese fashion he has inserted a loophole that renders it meaningless. Federal deposit guarantees will still apply to non-interest-bearing accounts. However, since interest rates have been at zero for the better part of the past three years -- pushing the payback on savings accounts down to a pathetic 0.001 percent per year -- switching over to a non-interest-bearing account is a no-brainer, even if the account charges fees.
With such a policy, the banks and government in essence would levy a negative interest rate on savings accounts. In exchange for insurance, depositors sacrifice a portion of their holdings.
Unlike many aborted Japanese reforms, the revised proposal if adopted will not worsen Japan’s economy. In fact, it will have a number of broad-ranging effects that will help manage the economy’s decline. It should indeed calm the frayed nerves of many Japanese citizens afraid of losing their savings. Money will still steadily leak out of the banks, but not in a panicked torrent that results in a sharp banking collapse.
The money that does leave will go into two places: new investments and cold storage.
In Japan, choices are very limited. Investment funds are heavily exposed to the government bond market, which has been paying zero and near-zero returns for the past several years. That leaves stock (and especially property) a standard refuge for scared capital.
Any losses the banks suffer from deposit withdrawals should be made up by higher stock and property prices; after all, it was the collapse of stock and property prices -- which make up a massive proportion of bank holdings -- that helped weaken Japan’s banks to the state they are currently in.
More Japanese, however, are likely to simply stash it away under their futons, an increasingly popular trend in the country. The amount of currency in circulation continues to climb -- 10.6 percent in July from a year earlier -- and the new policies will hardly staunch the flow. Any money stored away will not only be unavailable for the new investments that the moribund Japanese economy so desperately needs, but is also likely to help foster a rise in petty crime simply from the extra currency sloshing around in people’s pockets and homes.
So long as the hemorrhaging from the financial system is slow and steady, this new policy might actually achieve some good. Japan’s economy, particularly now that Koizumi has abandoned any real pretense to reform it, is in terminal decline. Policies such as this one do nothing to slow, much less reverse, that decline. What they do accomplish, however, is removing factors that would cause systemic immediate collapse.
In this case, the policy serves to prick the banking system, allowing funds to slowly bleed away. In time total deposits will be much smaller -- whether from capital flight or subzero interest rates -- and the banking sector’s stability will no longer command global attention.