Written by Maciamo on 16 November 2002
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 thought 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 deflation (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 apartment 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 nationalised 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 annihilated 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
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