Quick review of the Japanese economy

[Maciamo]

This is not from the news, but just my personal view of the situation.

After the WWII, Japan was destroyed, most cities, including Tokyo, flattened. The hard-working Japanese people rebuilt all very quickly. Thousands of construction companies appeared and prompted the economy. Japan had for aim to have an exceeding balance of payment and everything was made to reach this target, eve allowing industries to discard their wastes where ever they wanted. Loans were given very easily to foster investment. Japan first specialised in the heavy industry and finance, then, as the country got to work again in the 60's, went on to be a pioneer of high-tech, especially electronic.

click to read more

[Maciamo]

This is not from the news, but just my personal view of the situation.

After the WWII, Japan was destroyed, most cities, including Tokyo, flattened. The hard-working Japanese people rebuilt all very quickly. Thousands of construction companies appeared and prompted the economy. Japan had for aim to have an exceeding balance of payment and everything was made to reach this target, eve allowing industries to discard their wastes where ever they wanted. Loans were given very easily to foster investment. Japan first specialised in the heavy industry and finance, then, as the country got to work again in the 60's, went on to be a pioneer of high-tech, especially electronic.

In the late 70's, Japan had become one of the richest country in the world. The yen soared. In 1960, one could exchange 1 USD for 400 yens in 1975 1USD was still 305 yens, then suddenly passed to 196 yens in 1978. It fell again to 1USD for 248yen in 1984 then rose to 1:128 in 1987. The economy was ripe. Up to that time, the real estate (and stock exchange) prices had always increased and everybody thouhgt it could only continue like that, unlike in other parts of the world. End of the 80's, major banks invest massively in real estate.

Then, a catastrophic thing happened : the so-called bubble of prices, which had been steadily and dramatically going up, burst !

We are in 1990-1. First it was the real estate that slumped. Has the market come to saturation ? Is it going to restart ? No. Land and housing prices have never stopped falling to this day since the movement started 12 years ago. It was most dramatic in Tokyo and Osaka, where houses have lost about 50% of their values and commercial building up to 80%.

But is it such a problem ? Real estate prices were crazy in 1990. Wasn't it said that Ginza alone was worth the whole of California ? Now people can afford a bigger house and actually save money as salaries have only slightly decreased.

A bigger trouble is that the stock exchange soon followed the real estate on their way down to hell. That doesn't affect people's wealth directly, but that means that companies are having a hard time to raise new capital and most just go burst. So, people are losing their job for the first time, while their predecessors enjoyed life employement. Japan was almost unemployment free, but it is now over 5% and growing. That's still not too bad compared to lots of European countries averaging 10%. Insecurity has settled. People are saving more and more (but still less than Belgian or French, said the Economist) and stop buying (but you wouldn't believe it when you see people rushing to the Louis Vuitton or Chanel shops). As a result, Japan is the first country in the world to experience defaltion (prices are going down). But still, it might not be such a bad thing as life is getting cheaper, given salaries are stable. Anyway, if salaries were decreasing because of the difficulties at the stock exchange, it would be terrible for the consumers to have to face inflation.

What is now on the spot light is the situation of Japanese banks.
That is the most troubling issue, as most just risk to go burst if reforms to heal the economy are to be implemented. They have 2 major disease. The first is their bad investment in real estates that have made them lose billions of US$. The other worry is the non performing loan. Lots of zombie companies just can't pay back what they have borrowed. Among them, you'll find Kanebo (cosmetics), the retailer Daei, Isuzu (car/lorries), and lots of construction companies.

This is a vicious circle because of the real estate prices. Nobody has seen it come, which is surprising, but it seems evident that once everybody has a house and companies have already too many offices, building more would just make the price go down. That's simply the law of supply and demand. If there is too much of something, it gets cheaper. There are now too many houses (as Alex Kerr put it, Japan is overbuilt). What I don't understand is why they continue to built so many new "mansions" and new towers in Tokyo. In just a 200m diameter from my station, they have already completed 2 new huge appartment buildings in a year and are building 3 more. It seems to be the same everywhere. They destroy small houses and build huge 10 or 15 storey "mansions".

The situation is impossible to solve. In the one hand, real estate prices fall, but in the other, construction companies will close if they don't build more. If they close, hundred of thousands of unqualified workers will be unemployed (with virtually no chances to find a new job). Then, banks would not get their loan money back from construction companies and also go bust. If banks go bust, people risk losing their savings (actually, they'd be nationalied to avoid such a disaster, but the government's debts in badly in the red as well, with 130% GDP to pay back).

Nothing can be done, things have to continue as it is. The day the big earthquake will come, Japan will be anihilated again. This time it will have an very (very, very) serious impact on the world's economy. Global stock exchanges will crash like in 1929, because Japan is the world's 2nd economy. When we know that a single major Japanese company is richer than about any of 2/3 of the world nations, imagine what the crash of the whole J-economy would be. That would also mean that the world would have to do without most of its electronics for a while, as most is Japanese.

That seem so unreal, I just can figure it out.

(originally posted on Japan Reference Forum )

[Buraku]

American officials and private financial experts evaluating the depths of Japan's banking crisis have concluded that it is far worse than Tokyo has publicly acknowledged


Will Japan tech ever get out of its slump?

Japan Battles Bond Rating

The debts owed by the Japanese central government rose to a record 781551 bil Y as of the end of March up 78403 billion from a year before, the Finance Ministry said Friday
The amount is equal to about 6 million on a per capita basis and raises the possibility that the combined debt of the central and local governments has topped 1000 trillion yen for the first time.

J Govt Mo Concrete to Up Economy
Concrete theme park and museums would also be nice, so I can see where all the lovely concrete is made, the history of concrete technology...
What is it with the Japanese? Why isn't there more opposition to these incredibly ugly and completely unnecessary wastes of public money and time?

[Tsuru]

Every country has something characteristic to this country where the economy floats on to a certain extent, it seems.

The Americans make guns and other weaponry, France makes lots of good food, we make managers and Japan makes concrete

[Mulboyne]

While the efforts and organization of the nation were crucial, much of the recovery following the war can be attributed to US policies during the occupation (particularly regarding labour) and US demand over the course of the Korean War. I think you are a bit early in identifying the boom in construction companies so soon after the war. There was a lot of genuine reconstruction work required at that time but the characteristics of the "construction state" - massive public works, bid-rigging, yakuza involvement - really came together as part of the political machinery of Prime Minister Kakuei Tanaka.

I'm not sure what leads you to believe that finance was an area of excellence alongside heavy industry. It remains underdeveloped today. It was set up to do as you describe - channel savings via loans to industrial corporations - and so was heavily regulated and uninnovative.

The exchange rate movements you descibe are less to do with Japan's growth rate in that period and more to do with collapse of the gold standard as the basis for currency exchange and the move to floating exchange rates. Relative rates also were sharply influenced by oil shocks; deregulation of international debt markets and, importantly, the 1985 Plaza Accord under which the yen was allowed to appreciate at the initial expense of the nation's exporters.

Land prices hadn't always gone up post-war although it is fair to say that prices tended to remain stable during an economic slump, rather than fall, owing to a lack of transactions at that time. However, stock prices regularly crashed before the bubble period. Half the nation's stockbrokers even went bankrupt in the 60's (including Yamaichi for the first time) and had to be bailed out. Investors and bankers knew that asset prices could fall but, as seems to happen in every bubble, they came to believe that "this time it's different". Although most people asscociate the bursting of the bubble with a fall in land prices, stock prices were the first to fall. You say this was bad because companies could not raise funds from the market but, in truth, no-one needed to. Heavily leveraged asset owners faced negative net worth and an inability to meet interest payments. Industrial companies faced vast over-capacity.

The dynamic of the bubble economy changed around 1987. Following the Plaza Accord, exporters had suffered and the focus had moved to the domestic economy instead. The 1986 Maekawa report envisaged a Japanese economy driven by domestic demand and called for deregulation in agriculture, distribution and finance. Japan's exporters turned out, however, to be a lot more resilient than expected. The US commentator, A. Gary Shilling, was ridiculed for suggesting that Honda would be capable of making a profit with the exchange rate at 120 yen to the dollar. Months later he was proved correct and the real economy exploded back into life, generating massive capital spending. The financial sector had been in the spotlight but it is telling that, almost without exception, the stock prices of banks, insurance companies and stockbrokers started their decline in Spring 1987 - almost three years before the end of the bubble.

With regard to housebuilding, taxation and lending policies have favoured new buildings over old buildings to support the construction industry. The old Housing Loan Corporation would not lend if you wished to buy a house over 20 years old. You mention that you saw two new condos only 200m from the station. That makes sense since people have taken the opportunity of a weaker housing market to move closer to city centres and closer to transport hubs. The developer will sell or rent units to people who live further away from the station or further down the line. Also, since they are condos, it is likely that there has been some loosening on the zoning restrictions on those plots. Older housing and housing in outlying areas ought to get ripped down and redeveloped as it loses its ability to attract tenants. At some point, the "population timebomb" must affect demand for housing unless immigration is encouraged but, on balance, it is a good market for developers right now.

Although personally I'm more sanguine about the route the financial sector needs to take to full rehabilitation, I have to say that your concerns are no longer shared by the majority of foreign and domestic analysts despite Buraku's claims to the contrary. The financial sector, excluding sarakin and shokoh lenders, was effectively bankrupt but not acknowledged as such for years after the bursting of the bubble. As housing loan companies regional banks and credit co-operatives went belly-up - along with LTCB, NCB, Sanyo Securities and Yamaichi Securities - foreign banks and investors simply refused to provide standard finance to Japanese counterparts. This was most apparent in overnight lending where a Japanese bank had to pay a "Japan Premium" interest rate for what ought to have been risk-free business.

This forced the Bank of Japan and Ministry of Finance to come up with estimates of the bad debt problem. For a couple of years it was standard practice to ridicule any new official estimate but by then the internet boom was well under way and that game proved much more fun to play instead so Japanese banking dropped off the radar screen. Some years on, it is clear we have a much better picture of the bad debt problem. The point that some observers miss is that it shouldn't matter as much for the health of a financial firm if a company to which it has lent goes bankrupt provided it has already reserved for such an eventuality. What analysts look at, therefore, is how a bank identifies a non-performing loan (NPL). Most analysts seem comfortable that banks are aware of their problem loans. Once a bank classifies a loan as such, it must make reserves. So a fully reserved bank doesn't "need its loan money back" although I'm sure that it would rather get it back. For that reason, there is now less of a connection betwwen the future of some "zombie" companies and the viability of the financial sector. As quoted in FG Thread: The Glass is Now Half Full

"We continue to believe that we should be realistically positive on the major banks. There may not be a massive amount of organic growth potential in the short term, but net profits are set to continue to report new highs," said Goldman Sachs Japan in a recent report...Goldman Sachs reports that non-performing loans (NPL) for major banks have fallen to 7.7 trillion yen (US$70.76 billion) as of March 2005, after peaking in March 2002 at 27.2 trillion yen. By March 2006, the investment bank reckons this number will fall to 5 trillion yen. Given the banks' track record for failing to meet the mark in recent years, skepticism would seem a natural reaction. But independent experts say there is no reason to dismiss positive forecasts. "Their announcements are credible," said Toru Umeda, of Transparency Japan, an organization that tracks corporate and political corruption

I'm more sanguine since these profits have been generated through interest rate spreads and the bond markets. They are genuine profits which can be set aside against NPLs but I'd be happier to see banks becoming more efficient and able to generate profits via non-traditional but less risky services.
So it is not the case that nothing can be done since a lot has already happened. It is often depressing when the scale of some social or financial problem is acknowledged by the authorities; especially if this problem has been clear to see for years. But in Japan, and probably many other countries, it is a major step in the progress to a solution to have the problem acknowledged.

I'm not willing to predict the outcome of a major earthquake but that point seems entirely separate from your other concerns. If anything, the movement of production capacity to other countries arguably makes an earthquake a lower risk for the world economy. However, it is nigh on impossible to assign probabilities even to the vast range of initial possible outcomes in the event of an earthquake so your guess is as good as mine.

[Buraku]

Still atempting to hijack threads with the Glass half full bull

seriously ill Japanese economy takes every possible step to prop up the equally ailing US economy, pouring Japanese savings into the black hole of American illiquidity in order to subsidize the US global empire under construction in Iraq
Billions of Dollars are being burnt away in Middle East security and Uncle Same gets nothing but Anti-american hatred in return, Japan goes to fund the debt, and finance the over-consumption. The debt in the two countries is of similar size, approximately $7 to $8 trillion by most estimates ( 700 + trillion yen for Nippon according to OECD, but estimated to be around one QUADRILLION yen, $9 trillion plus, if the debts of government instrumentalities are included). The lower figure still amounts to around 150 per cent of GDP, highest in the OECD, if not in the entire history of our Planets money system. What number can Japan do next - an Octillion in debts by 2007 ? Kiyoshi Takeuchi, the man who ran Prime Minister Junichiro Koizumi's election committee for decades, was a member of the Inagawa crime syndicate. Welcome to the Yakuza recession !!

[Mulboyne]

Still attempting to hijack threads with the Glass half full bull

No hijack. It was a reference to your earlier post in this thread:

American officials and private financial experts evaluating the depths of Japan's banking crisis have concluded that it is far worse than Tokyo has publicly acknowledged

That's certainly what people thought five or six years ago. I'd be keen to know who you believe currently expounds those same views.

[FG Lurker]

Today on the Mainichi page there is an article up that talks about Japan's debt situation. The bottom line is that Japan has public debt of about seven trillion..................................dollars.

7,000,000,000,000 US dollars.

Holy shit.

7 trillion is a number too big to really comprehend, so in more manageable terms, that is about US$56,000 for every man, woman, and child in Japan.

A lot of this debt is in the form of government bonds -- people's life savings. What happens in a few years when baby boomers start retiring enmasse and want to get at that money? The government just starts printing more cash? That would fix the deflation problem in a pretty big hurry, but otherwise not a desirable thing...

The World Bank could bail out Japan like it did South Korea.... Except the population of all G7 countries combined is 713 million people. A round US$10,000 to cover for each person in every G7 country (including Japan). So much for that idea, not even considering the multitude of other "issues" a World Bank bailout of the world's 2nd largest economy would create.

I suppose the j-gov't could do a "Sorry, we just can't pay. Oops! Our bad! To make it up to you here's a blue tarp for when you move to the local park." kinda thing....

I see this as a large and looming problem, but I can't see any reasonable ways to handle it. Anyone have (constructive) thoughts and ideas?

[Buraku]

Japan is no longer the second largest economy
there is now the EU somewhat unstable, politically regressive and getting smaller after Brexit
if you don't count the EU, China is second place
while Germany beats Japan by GDP nominal, richest per Capita you have the Swiss or Monaco or Liechtenstein, tax havens like Cayman Islands
Purchasing Power Parity the Chinese are now ahead of the USA and India has more overall wealth than Japan but in reality although a Hindu 'Democracy' it has a Caste system and many of its Billions are dirt poor, they even try to give Street Shitters toilets and they won't use them...because of explosive delhi belly diarrhea people just shit on the street or Indian's won't use a toilet over fear of rape from gangs of other Indians?


Kuznets,
Prize winner says there are four types of countries in the world—developed, undeveloped,
also out there and you have the old madness of Argentina
and then a nutty Japan...which might be the future of most nations, stagnation.


Lowered adult age sees rise in young Japanese struggling with debt
https://japantoday.com/category/nationa ... -with-debt

and 22 years later

2008 crisis, mini Bush starting multiple wars, Obama, Trump and then a senile Joe Biden and lost Kamala Harris

Kamala Harris chants “DOWN, DOWN WITH DEPORTATION!" at a 2018 parade with Hollyweirdo dual citizen Jew Afro Actor and Hate Crime Hoaxer Jussie Smollett
https://x.com/CatchUpFeed/status/1838230177077202972

Smollett staged a fake hate crime against himself in Shitcago a gun controlled city where armed gangster drug dealer Blacks kill other innocent Black in mass shootings every weekend...but mostly unreported

His mother is African-American, and his father is Jewish.
Oy Vey! Bar Mitzvah...He has said that his father would "kill you if you called him white"

In March 2024, the Supreme Court of Illinois announced that it would hear an appeal by Smollett into his conviction, although no date was set for a hearing

America’s $35 Trillion Debt Crisis Could Slam the Middle Class: How Can You Prepare?
https://finance.yahoo.com/news/america- ... 43727.html