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  1. #1
    Twirling dragon Maciamo's Avatar
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    Maciamo News

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

    I have deeply refelcted on the woes of the Japanese economy.

    Here is a summary 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.
    Last edited by Maciamo; Nov 15, 2002 at 11:27.

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  2. #2
    Decommissioned ex-admin thomas's Avatar
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    What an excellent overview, I hope that "Maciamo News" becomes a regular feature, so that economic flops such as I get their eyes opened.


    Financial consolidation will the catchword for the years to come. Consolidation as well as governmental programs to "cushion" the social impact.

    > People are saving more and more (but still less than
    > Belgian or French, said the Economist)

    Do you mean that the tendency to save money is dropping? I assume Japanese still have the largest private savings worldwide, in relative and absolute numbers. Figure that they have ¥ 760 trillion (!) in bank savings and another ¥ 360 trillion in postal savings (these private savings also include company assets). Astronomical!

    > stop buying (but you wouldn't believe it when you see
    > people rushing to the Louis Vuitton or Chanel shops).

    Unfortunately for Japan, a high percentage of these goods are purchased by Japanese tourists abroad.

    Another interesting aspect are Japan's external financial assets, an aspect that's also vital for the US:

    Currently, the debts of Japan s central government stand equal to 135% (conservatively estimated) of Japan s GDP. Even with interest rates on this debt down to 1.08%, servicing it takes a huge 23% of taxation revenues. Raise Japan s ultra-low interest rates to western world mean rates of about 5%, and it is clear that government revenues would have no hope of even SERVICING this debt. In sum, Japan is as caught in a debt trap as Philip I of Spain once was. In the absence of miracles, Japan too will head in the same direction. The time bomb which Japan holds is its plus-$US 1 TRILLION in external financial assets, mostly U.S. Treasury paper and U.S. corporate paper and stocks, as well as huge real, physical plant and other productive investments right around the western world. But where physical assets are always hard to sell, financial paper can be sold instantly. If Japan panics, or decides to retaliate against the U.S. tariff decision, the easiest way for Japan to gain liquidity would be a full-scale sell-off of most of its foreign investment paper. Here, the U.S. is right in the line of fire. It owes Japan the most.
    Source: http://www.investmentrarities.com/th...3-12-2002.html

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

    Agreed.

  3. #3
    free spirit lineartube's Avatar
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    Holy contents, Batman! Good work Maciano!!

    I remember studying in High School about Toyotism and the "Quality Rings", the Zaibatsu and the Keiretsu. It was interesting at the time and those two systems help to understand why is it so difficult to foreign companies enter the Japanese market.


    Economics 101:

    Zaibatsu are horizontal networks combining companies, operating in different markets. Such conglomerates led Japanese trade and industrialization during pre-war era: Mitsui, Mitsubishi, and Sumitomo. After the war three new networks were formed around major banks: Fuyo, Dao-ichi Kangin, and Sanwa.

    Keiretsu are vertical business networks, built around kaisha - large specialized industrial organization. This sort of network combine hundreds of suppliers and subsidiaries. Major such networks are: Toyota, Nissan, Hitachi, Matsushita, Toshiba, Tokai Bank, and Industrial Bank of Japan.

    "The decisive component of in either keiretsu and ziabatsu is trading company, which is a link between suppliers, producers, and consumers.

    Such system makes entry to the market by foreign company extremely difficult. Major decisions in such system is coordinated with mother company. Therefore, if the entrance of firm to the market would be disadvantageous to one of the networks, the deal would not be conducted."

    source: http://www.apu.ac.jp/~ignasli1/busi_netw.html
    Ln.

  4. #4
    Regular Member moyashi's Avatar
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    Zaibatsu were outlawed by MacArtuhur but later reinstated to help with the on slaught of communism. Of course the name was changed and Keiretsu is now used.

    deflation is great! I finally can eat food and buy things at close to US prices or even less.

    Sell of the "Green Backs" and kick the US in the pants for once and for all.

    Takenaka one of the finance minsiters protected by Koizumi is getting slack for being a US lapdog. Well, basically he is but he under the influence of the US is pushing for a clearer and more point blank accounting techniques. The US and Japan are like way different when it comes to accounting principles.
    So, this means if Japan goes through with this US supported reform most Japanese banks would go under. The loans that Maciamo mentioned are much much more than probably what most of us could even imagine. During the bubble and even after banks were begging companies to take on Millions and Millions of loans for almost zero interest. These companies, well actually, the presidents took the cash and invested in golf course memberships, Ginza hostesses and what not. So, obviously the money is gone.

    My solution would be to wipe out all debt, or at devalue it to at least 1/10th of the original value and collect on that. I'm all most positive that the bubble was created on funny money printed in cellars of the banks. There is no way I can explain how so much money came to be in existence in the first place. So, giving the companies a break will create good will and companies will actually consider paying their loans.

    I seriously think that deflation in Japan is a good thing.


    Saving money is still a strong ethic with the 40+ generation ... 30+ married folks are happy putting every penny a side that they can but which isn't that often. 20 generation have been helping docomo conquer Europe.
    GDP this quater was at +0.7%
    crazy gonna crazy

  5. #5
    Twirling dragon Maciamo's Avatar
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    Zaibatsu are horizontal networks combining companies, operating in different markets. Such conglomerates led Japanese trade and industrialization during pre-war era: Mitsui, Mitsubishi, and Sumitomo. After the war three new networks were formed around major banks: Fuyo, Dao-ichi Kangin, and Sanwa.

    Keiretsu are vertical business networks, built around kaisha - large specialized industrial organization. This sort of network combine hundreds of suppliers and subsidiaries. Major such networks are: Toyota, Nissan, Hitachi, Matsushita, Toshiba, Tokai Bank, and Industrial Bank of Japan.
    Just to update the info, the Fuji, Dai-itchi Kangyou and Industrial bank of Japan have merged last April to form the world's largest bank : Mizuho. It seems that bad loans and unresponsible management have condemned it to a premature death if the Takenaka reforms were to be implemented, strictly or at all.
    Sanwa has also merged with other minor banks and became the UFJ bank about a year ago. Mitsui and Sumitomo's holding is much older than that.

  6. #6
    Twirling dragon Maciamo's Avatar
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    Moyashi said : "My solution would be to wipe out all debt, or at devalue it to at least 1/10th of the original value and collect on that. I'm all most positive that the bubble was created on funny money printed in cellars of the banks. There is no way I can explain how so much money came to be in existence in the first place. So, giving the companies a break will create good will and companies will actually consider paying their loans.
    What worries me is that money could have been made so easily out of nothing. If it's so easy, why don't all country just print more money or "invent" it in bank accounts like Japan did (??).
    I've always been told that creating more money caused devaluation. In Japan, the opposite seems to have happened. Why ? Is it because the virtual money was in the companies' s accounting rather than in paper money ? Presently, banks have lended so much money that they couldn't pay back even a fraction of people's savings if they wanted to withdraw everything. That's why the high saving mentality is actually saving Japan from an overall bankrupcy.

    Takenaka's reforms won't come, simply because it would force banks to reveal their insolvency and bring them down. I am sure that it would mean a fantastic devaluation of the yen, because the real amount of money in the banks is nothing like what it is suppose to be. Money has been made out of nothing by some kind of cunning stratagems, but one day Japan will have to face the reality (or won't she ?).

    If the country can just live as it is (with fake money in banks and company accounts), then I strongly advise all other country to copy the Japanese system (like Korea at the moment) in order to enrich themsleves like Japan did.

  7. #7
    Regular Member moyashi's Avatar
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    Takenaka ideas are being targetted left and right by the government and the business sector. Obviously, as Maciamo also pointed out, Japan's banks would largely have to sell all holdings and all US Dollars to pay back the lenders.

    During the bubble lot's of companies got money really easy. I'm mean easy. The banks would beg large companies to take on debts for very low percentages, virtually ZERO. Just guessing but probably like 1% or so. While companies who wanted money could get it my filling out a form with outrages figures and BINGO free lunch and hostess money.

    Up in Sapporo there was a compnay called Therme. It was a hotel, water pool park, wedding chapel, hot springs complex. JTB the travel agency also had their fingers in it. Anyway, the company predicted something like 5,000 visitiors a day and 10,000 on the weekends. (I'm guessing but I bet I'M dam close) Where did they get these figures? Probably out of their ARSES. Serious, hey, 1.8 million residents and 5,000 is pretty reasonable, right? Yeah! So, they got great figures with a great forcast for 10 years and the banks said ok, here's 100 million to play with. Well, whatever it cost to make. Within, 5 years the bubble burst, 3,500 yen entrance fee for the water park area was no longer attractive when you have to drive 30 minutes to get their. OH, that's right! The location is like 30 minutes from Sapporo Station and is a horrible slippery drive during the winter with really horrible traffic. It is a beautiful complex! Anyway, the location probably was some brain dead planner's idea. DOH, people will come from Tokyo and stay here instead of 5 minutes walk from Susukino the drinking area.

    Anyway, I'm sure you get the point. Marketing reasearch is based on Suzuki-san and Tanaka-san think alike so let's not bother asking anyone if they would drive 30 minutes, or hell even pay 3,500 yen for 4 hours of swimming.

    Hell, bus advertisement is based on routes. This route is on a big road and has many riders. Any other questions can't be answered because this route is not as good because it's on a narrower road with less riders.
    I'm dead serious.
    My friend and I asked what's the average age? hmmm, saaa, maaa, geee,
    What's the average income? hmmm, saaa, maaa, geee
    What's the time for the most riders? geee, maaa, saaaa, ahhh, hmmmm
    But our price is really cheap! Why yes, that's for sure, we replied. But hell, we might as well run naked cause we'd get more attention.

    Anybody want to pay for venture capital out there? I've got like 3 business ideas that would revoltionalize Japan!

  8. #8
    free spirit lineartube's Avatar
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    You know moyashi, James Bond fights people like you in every movie. hehehehe

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