The heat may finally be off Japan

VIEW FROM TOKYO

Observers of Japan over the past seven months have learnt to be wary of expressions like "turning point", as the government and the economy have stumbled helplessly from crisis to fresh crisis. But three things happened last week which suggested that August might be a month of change.

On Tuesday, the Cabinet underwent a partial reshuffle, suggesting a new attentiveness in the ruling coalition as it prepares for a leadership struggle and the possibility of an early election. On Friday, the Prime Minister, Tomiichi Murayama, finally managed to squeeze out the golden egg which he has been struggling to lay all year: an expression of regret for Japanese aggression during the Second World War.

And all week, an unaccustomed phenomenon was observed in the foreign exchange markets: after a year of stifling strength, dipping at one point below Y80 to the dollar, the yen steadily weakened, closing at Y93.75 to the dollar, nearly Y6 more than at the beginning of August. The fall brought immediate relief to exporters, who have seen their profits undermined by the cost of Japanese goods overseas, and to overseas investors, whose dollars and marks rose in value.

The cheer was unexpected because the month had started very grimly indeed. After months of rumours about the bad debt crisis among Japanese banks, a newspaper report about the wobbly Cosmo credit union provoked a panic among investors. The Bank of the Japan and the Tokyo metropolitan government provided multi-trillion yen cash infusions and plans were drawn up to dismember Cosmo.

Scenes like this have been predicted for months, as the Bank of Japan has revised upwards its estimate of bad loans - the current assessment is Y50 trillion, almost unanimously assumed to be an underestimate. It is certain that there are other Cosmos out there, just waiting for a headline to wipe them out. So how has Tokyo moved from such intimations of financial doom to a position of relative, if frail, optimism?

The answer may be that a banking failure was just what the men at the Ministry of Finance (MoF) needed. For there is no doubt that it is from the bureaucrats, rather than the politicians, that any solution to Japan's financial crisis will come. Even under a strong Prime Minister, they are a notoriously independent bunch, confidently immune to the whims of passing politicians, and supremely secure in their position as the permanent engine room of the Japanese economy.

But strong ministries, unlike strong governments, do not move quickly. In recent months MoF's habitually stony demeanour has looked less and less like haughty authority and more and more like paralysis. The traditional bureaucratic approach was plainly inadequate to a cliff-hanger situation when the stock exchange was plummeting, the currency soaring, and the banking system threatening to go into meltdown.

The Cosmo crisis was the best kind of bad news: mild enough to be kept under control, but scary enough to galvanise the bureaucrats and shock taxpayers out of their sceptical reluctance to make public funds available. some analysts even saw the whole thing as a brilliant conspiracy by the MoF, which might have consciously sacrificed Cosmo to get the public on its side. Koyo Ozeki, of the banking researchers IBCA in Tokyo says: "I think it was a sort of gamble to allow a managed panic."

Having shaken off their lethargy, it may be no coincidence that two days later the MoF took on its other great headache: the soaring yen. Or at least it appeared to, with a cautious package making it easier for Japan's life insurers to invest their wealth overseas.

The outward flow of yen immediately brought the currency down, and securities markets all over the world perked up in expectation of a rich serving of Japanese cash. But the sustained downward turn was in large part due to dollar buying by the Bank of Japan and, most importantly, by the US Federal Reserve.

Here again, there is a conspiracy theory. Without concerted bilateral action, it was always going to be difficult to beat down the yen, but the Americans have never shown much interest until now. In many ways, the high yen was to their advantage, and naturally counteracted what has enraged the US for so long: Japan's chronic resistance to American imports. The long-running trade dispute came to a head in June when the US finally wrung out of the Japanese car companies a commitment to buy more American parts. Having won this, the theory goes, the US is now happy to join Japan in tackling the mighty yen - with the added benefit of knowing that those newly empowered insurers will be making a lot of their investments in the US.

After months of doom-mongering, Tokyo has suddenly been cheered by a glimpse of a new, almost fairy-tale, happy ending: a bureaucracy galvanised into finally sorting out the bad debt problem; and an export industry, freed from the shackles of the high yen, but rendered sleeker and even more efficient by its period of suffering.

There is still a long way to go - and probably several more banking failures - before this golden land is reached. But Japanese can be forgiven for feeling that in sweltering August, with the temperatures in the hundreds, the heat is finally coming off.

PROMOTED VIDEO
News
Teeth should be brushed twice a day to prevent tooth decay
education
News
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
news
Sport
footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League - but Mourinho is short of strikers
News
Those who were encouraged to walk in a happy manner remembered less negative words
science
Arts and Entertainment
Princess Olga in 'You Can't Get the Staff'
tvReview: The anachronistic aristocrats, it seemed, were just happy to have some attention
News
Renee Zellweger as Bridget Jones
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
tech

Board creates magnetic field to achieve lift

News
There have been various incidents of social media users inadvertently flouting the law
news

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Sport
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London