Desperate Japan plays its last card

Legalisation of gambling is a safe bet

With a rising tide of corporate bad debts, surging unemployment and an economy that stubbornly refuses to recover, Japan remains in the throes of a 10-year losing streak.

With a rising tide of corporate bad debts, surging unemployment and an economy that stubbornly refuses to recover, Japan remains in the throes of a 10-year losing streak.

And, like the worst kind of gambler, the government has reached the desperate conclusion that the only way to save the day is to head straight back to the gaming tables.

Japan's repeated inability to kick-start its flagging economy has started to take its toll on the national purse. The country's recent reliance on huge borrowing last week caused Standard & Poor's, the rating service, to downgrade Japan from the triple-A rating it has held for 26 years.

Expensive and futile public works projects, aimed at creating jobs and stimulating activity, have left the coffers of many local authorities close to empty, and the flow of cash-raising ideas from central government has run dry.

But it has one trump card left to play.

In the aftermath of the war, Japan needed tight measures to stop people squandering what little money they had. And, for the past 55 years, Japan has been the only advanced economy that outlaws private gambling. Now, in a last-ditch effort to fill its wallet, the government is on the brink of legalising casinos and off-course betting.

The government knows it is on to a very good thing. For a country where almost all forms of gambling are illegal, the Japanese have consistently shown their desire for risk is unstoppable. Thriving beneath the surface of Japanese society is a vastly successful covert betting industry that the people love and the authorities grudgingly accept.

In 1994, it was estimated that total receipts from illegal betting, casinos and other games were bigger than Japan's then booming auto industry. Most of the profits, however, ended up in the hands of gangsters and racketeers, the Yakuza.

By bringing some of this into the legitimate world, the government thinks that not only will it suddenly receive a juicy revenue of tax yen, but that even more people will get involved. Government advisers have argued that grim economic conditions actually sharpen the desire for risk. This logic was employed when the government launched its national lottery at the end of the 1980s, legalising on-course betting at horse, boat and bicycle races. At first, these were wildly popular and, with 40 per cent of sales going to local authorities, generated impressive sums of money in the early 1990s.

But these schemes were not enough to quench the thirst for daily gambling, and receipts have dropped by nearly a quarter as punters seek out more glamorous and accessible ways to lose their shirts.

Nahoko Hoshino, a senior economist at the Daiwa Institute of Research, claims that revenue from lotteries and public gambling has slumped to under 1 per cent of the total revenues of regional governments. Some analysts claim that if casinos and betting shops were legalised and taxed, that proportion could rise to nearly 10 per cent.

"The government knows that legalising gambling is the way forward," says one Tokyo analyst. "Everyone does it anyway, so it makes sense to get something out of it. Allowing lotteries and on-course betting was a first step, but if you look elsewhere in the world, it is the casinos and betting shops that make real money."

In that spirit, the government is next month launching its own system that allows betting on football matches.

"Toto" is planned as a pools-style gambling system that will cover all matches in Japan's top soccer J-League, and is expected to be highly popular during the 2002 World Cup. From this first step, many now believe that casinos will soon be made legal, and local governments are already drawing up their plans for taxing them. When the barriers finally fall, Japan will suddenly represent a rich seam of opportunity for foreign casino operators, particularly those from the UK.

As part of its radical change of heart, Japan's government is thought to have sent a delegation to seek advice from the British Gaming Board. "Japan legalising gambling is the news everyone has been waiting for," says a City analyst.