Static Japanese economy wakes up to Big Bang

APRIL Fool's Day has never really caught on in Japan and this year, even more than usual, today will be a solemn and joke-free day. It is the beginning of the new financial year, and a time of unusual anxiety, with the continuing uncertainty of the Asian economic crisis. But above all it is significant as the beginning of something which has been eagerly and tensely awaited since its announcement a year and a half ago. Few Japanese understand exactly what it means; no one knows whether or not it will work. The easiest thing about it is its name. It is the "Big Bang".

Biggu Ban (as it is known in Japanese) is no joke, indeed, on the face of it, it is a yawn: a series of changes in Japanese laws and rules designed to liberalise the financial markets.

If the Big Bang works, Japan will be assured of its status as the world's second financial superpower, a magnet for money and financial expertise from all over the world. If they fail, it is feared, the country will dwindle in power and influence to become the Switzerland of Asia, a place of expertise, but little influence. "It is like Japan is sinking," Juichi Yamanaka, an economist with Nippon Life Insurance Co, said this week. "Unless it changes fast it will lose any hope of staying afloat."

For most of the decade, the economy has been stagnating with close to zero growth. The banking system is shackled with bad debts left over from the "bubble economy" of the 1980s. In 1989, the value of companies on the Tokyo Stock Exchange was the highest in the world. This week, after the latest in a series of tumbles on the stock exchange, Tokyo slipped into third place, behind New York and London.

The principal reason for this, everyone seems to agree, is regulation. In Europe and America, the guiding philosophy is survival of the fittest. Financial companies are largely left to themselves to prosper or fail according to their own luck, judgement and the natural movement of market forces.

In Japan, they are subject to the wishes of the Ministry of Finance, which plays a large role in determining who can do what. Those who co- operate are protected from outside competition; they make profits, but the process of natural selection which weeds out the failures and encourages the talented, is stifled. As a result, they are flabby, uncompetitive and inefficient.

Biggu Ban takes its name from London's Big Bang of 1986; in a similar way it seeks to remove protective regulations and expose Japanese companies to the chill winds of international competition. Some will perish quickly, most will stagger for a while at least but, at the end of it, the theory goes, they will be fitter, stronger and better able to serve their customers and markets.

In fact the Bang is more of a series of burps than a single explosion; further changes will come in between now and 2001.

Many things could go wrong before this brave new world becomes a reality. Japan's bureaucrats, whose power depends on their ability to control the levers of the financial industry will do all they can to resist the changes. Secondly, as the architect of the Bang, Ryutaro Hashimoto, Japan's Prime Minister, may find himself out on his ear. Before its beneficial effects register, the programme will result in long established Japanese companies, traditional supporters of his Liberal Democratic Party, being driven out of business. Finally the plan depends on an acceptance of foreign competition, a concept alien to traditional Japanese business thinking. The intentions are good, but the Big Bang may yet turn out to be no more than an April Fool.