Bending Adversity: Japan and the Art of Survival by David Pilling Page B
Authors: David Pilling
Ads: Link
other countries present, agreed to intervene on the currency markets in an effort to strengthen the yen and weaken the dollar. The idea was to help theUS clamber out of recession and to close what had become a yawning trade gap between Japan and America, a cause of increasing friction. The effort proved all too effective. Over the next two years, the yen doubled in value from Y240 to Y120 against the dollar, making Japan’s products twice as expensive for the rest of the world to buy. The Bank of Japan, the central bank, convinced that the higher yen would tip Japan into recession, lowered interest rates to keep the economy afloat. It was also acting in response to western requests – of the sort these days being made of China – to boost domestic consumption and serve as an engine of world growth.
There were domestic reasons for the crisis too. The government had deregulated the capital markets, making it easier for companies to issue debt rather than borrow from banks. That left banks looking for alternative places to invest their deposits. All too often they lent to those who wanted to speculate on property. Japan had also failed to make the transition from exporting powerhouse to what Yasuhiro Nakasone, prime minister in the mid-1980s, called an ‘importing superpower’. 4 The post-war political economy had been built around production and exports. Shifting to a consumer-led model was easier said than done. For that, one needed to overcome vested interests and an entire political structure built around big business rather than the ordinary citizen. As a result of the central bank’s effort to stimulate the economy, money became easier and cheaper to get hold of, fuelling a speculative frenzy. The price of shares and property began to escalate in what looked to many like a one-way bet. Even Onoue’s ceramic toad appeared incapable of making a wrong move. Of course in finance, as in life, bets can go both ways. When the central bank, realizing how far things had got out of hand, tried to tame the euphoria by raising interest rates, the bubble was pricked. Japan, which had been floating on air for so long, landed with a thud. There would be no return to the economic vigour of the past. The dream of Japan as Number One was over.
• • •
It took many years for the Japanese to understand that collapsing asset prices marked more than a temporary setback. Hype about the unique strengths of the Japanese economy – based naturally on the unique virtues of the Japanese people – led many to believe that it wasonly a matter of time before shares and property prices bounced back to ‘normal’. In the first years of the 1990s, the economy grew reasonably well. Only as the decade wore on, did growth slow and some financial institutions begin to come under pressure. Gradually, it became clear there was to be no return to the good old days. This was the new normal.
To breathe life into the flagging economy, over the course of the 1990s successive governments implemented several big stimulus packages of the sort that Europe and America tried after the 2008 Lehman crisis. They spent on public works – later derided as ‘bridges to nowhere’ – on tax cuts and on social security. At one point, they even sent shopping coupons, worth around $200 each, to more than 30 million households. If the aim was to return to pre-bubble growth rates, these stimulus packages didn’t work, though no one knows what would have happened without them. 5 Whatever the effect, growth in the 1990s averaged just 1.2 per cent – about one-quarter of its rate in the 1980s – and Japan suffered no fewer than three recessions. While living standards held up reasonably well, it was a far cry from what ‘catch-up Japan’ had been used to. Worse was to follow. From 1997, a few big banks, laden with bad debts, started failing. Among the casualties was Yamaichi Securities, none other than the source of trading information for
There were domestic reasons for the crisis too. The government had deregulated the capital markets, making it easier for companies to issue debt rather than borrow from banks. That left banks looking for alternative places to invest their deposits. All too often they lent to those who wanted to speculate on property. Japan had also failed to make the transition from exporting powerhouse to what Yasuhiro Nakasone, prime minister in the mid-1980s, called an ‘importing superpower’. 4 The post-war political economy had been built around production and exports. Shifting to a consumer-led model was easier said than done. For that, one needed to overcome vested interests and an entire political structure built around big business rather than the ordinary citizen. As a result of the central bank’s effort to stimulate the economy, money became easier and cheaper to get hold of, fuelling a speculative frenzy. The price of shares and property began to escalate in what looked to many like a one-way bet. Even Onoue’s ceramic toad appeared incapable of making a wrong move. Of course in finance, as in life, bets can go both ways. When the central bank, realizing how far things had got out of hand, tried to tame the euphoria by raising interest rates, the bubble was pricked. Japan, which had been floating on air for so long, landed with a thud. There would be no return to the economic vigour of the past. The dream of Japan as Number One was over.
• • •
It took many years for the Japanese to understand that collapsing asset prices marked more than a temporary setback. Hype about the unique strengths of the Japanese economy – based naturally on the unique virtues of the Japanese people – led many to believe that it wasonly a matter of time before shares and property prices bounced back to ‘normal’. In the first years of the 1990s, the economy grew reasonably well. Only as the decade wore on, did growth slow and some financial institutions begin to come under pressure. Gradually, it became clear there was to be no return to the good old days. This was the new normal.
To breathe life into the flagging economy, over the course of the 1990s successive governments implemented several big stimulus packages of the sort that Europe and America tried after the 2008 Lehman crisis. They spent on public works – later derided as ‘bridges to nowhere’ – on tax cuts and on social security. At one point, they even sent shopping coupons, worth around $200 each, to more than 30 million households. If the aim was to return to pre-bubble growth rates, these stimulus packages didn’t work, though no one knows what would have happened without them. 5 Whatever the effect, growth in the 1990s averaged just 1.2 per cent – about one-quarter of its rate in the 1980s – and Japan suffered no fewer than three recessions. While living standards held up reasonably well, it was a far cry from what ‘catch-up Japan’ had been used to. Worse was to follow. From 1997, a few big banks, laden with bad debts, started failing. Among the casualties was Yamaichi Securities, none other than the source of trading information for
Similar Books
