Outlook: Not such a Big Bang in Japan

Click to follow
The Independent Online
HOWEVER anti-climactic its beginning yesterday, Tokyo's "Big Bang" has the potential to be the biggest institutional change to take place in Japan since the war. If they are followed through, the rolling programme of financial reforms, more a series of canon salvos than a single unified explosion, will throw wide open one of the biggest and most lucrative markest in the world.

One third of the world's savings - some pounds 5,400bn worth - are held in Japan. For decades, Japanese savers - cautious by nature and starved of choice - have put up with derisory interest rates in order to allow Japanese banks, with the connivance of the Ministry of Finance, to lend on the cheap to companies in which they then invest.

The strategy has come horribly unstuck, not just in Japan but across the Pacific Rim. Protected markets, inefficient financial institutions, cronyism and corruption have conspired to leave the banks with enormous problem loans and seriously weakened balance sheets. Hardly the most auspicious basis from which to launch such fundamental reform.

The documents detailing the various stages of the Bang stand four inches thick, but its broad purpose is twofold: to tear down the barriers which prevent Japanese banks, brokerages and insurance companies from competing in one another's businesses; and to expose them to competition from foreign rivals all over the world.

If the reforms work as intended then we will see an extraordinary sea- change with weak domestic banks going to the wall and the creation of a huge mutual fund market which would not only serve its corporate sector better but transform returns for savers and investors.

But don't bet on it. There are already some signs of backsliding. The commitment to end exchange controls is hemmed in with catches while the willingness of the Japanese government to bale out 21 banks only last month with a Y1.800bn capital injection hardly looks like the act of an administration eager to usher in competition.

Japan's institutions will adapt to survive. Throughout history, they have had a knack of transforming themselves on the outside while retaining their essence within. In the 1860s, the country opened up and modernised itself after 300 years of feudal isolation; and yet the caution, group consciousness and uniformity of the feudal era remain as strong in some ways as they were 200 years ago.

Five years ago, to take another example, observers marvelled at the sudden overthrow of the Liberal Democratic Party, after forty odd years in power; but now it is back, arguably with a firmer grip on power than before.

Politically, Big Bang it is a risky undertaking for the prime minister, Ryutaro Hashimoto with a lot of big vested interests ranged against the project. If he falls there is no guarantee that a successor will pursue reform with such vigour.

The domestic bankruptcies which are bound to result frm increased foreign competition may foster a nationalist backlash - only this year, a right wing gangster held an official of the Tokyo Stock Exchange hostage for five hours demanding that Big Bang be abandoned as an unpatriotic sell out to the west.

Poweful vested interests stand to lose out in the process of reform and though they may appear to be on the ropes, they are not yet beaten.

Comments