Personal Finance: In some ways, the collapse of Japan's fourth largest bank should be welcomed

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Indy Lifestyle Online
Both sides of the inflation versus deflation argument received a fillip this week. Those who believe rising prices are the real danger will have had their fears confirmed by the latest Bank of England Inflation Report. The Labour market is tightening, with shortages appearing not just amongst skilled workers. Those unfortunate employees of Yamaichi should have little difficulty in finding new employment in the Square Mile.

The collapse of Yamaichi - and more importantly the problems facing South Korea - must add weight to those who argue that deflation remains the dominant threat. The delay to Hyundai's pounds 3bn semiconductor project in Scotland is just one example of how the problems afflicting the Tigers may have knock-on effects. Analysts have downgraded their growth forecasts sharply. The restrictions accompanying the IMF rescue package in South Korea will not help either.

But there is comfort to be gained from news emanating from the Orient. The relative calm with which markets greeted the news of the collapse of Japan's fourth largest stockbroker is encouraging. At the very least it shows confidence in the authorities' ability to manage the situation. Indeed, in some ways the collapse should be welcomed. Not so many years ago such a major financial problem might have been swept under the carpet.

Yamaichi is the third Japanese financial institution to fold in as many weeks. Interestingly all were based on the same street in Tokyo, now not surprisingly nicknamed Tosan-Dori, or Bankruptcy Row. No doubt other brokers sharing this address are even now looking for alternative premises.

Back home there are a few brokers who are none too pleased with the Stock Exchange. Problems remain with the electronic order book, which is still failing to achieve the penetration into share trading originally envisaged. Prices during the first hour of trading remain unreliable, but this is when the bulk of execution-only business is transacted.

The prices struck for these trades can be as much as 15 per cent adrift from those that apply once the market has settled down. The Exchange toyed with the idea of allowing a delay before these orders were carried out, but has abandoned these plans, preferring to recommend the adoption of price limits instead.

Execution-only brokers considered this unsatisfactory. Educating clients to use limits sensibly will add to their costs and risks remain that orders will not be carried out, or more than one attempt will be made to transact what should otherwise be simple business.

With a number of traders now curtailing their link with the electronic order book to avoid highly volatile periods at the beginning and end of the day, both prices and index levels cannot be relied upon.

Brian Tora is chairman of Greig Middleton's investment strategy committee