NO. 23 &emdash; June 20, 1997


Feature Article


1990s: banks seemed to dominate the market much as their counterparts did in the United States and Japanese consumers had surpassed Americans' use of credit. Banks' share of the credit market had grown by a factor of five from the early 1980s to a peak of 35 percent in 1991. Low-cost funds, access to a large customer base and scale efficiencies were the apparent sources of their market leadership. However, the banking sector's retail efforts revealed a weak dedication to mass marketing. Moreover, banks never developed sophisticated credit evaluation capabilities. Just as property-based lending during the "bubble economy" years of the late 1980s stimulated bank installment lending to consumers, the real estate market collapse in the early 1990s left bankers wary of such unbridled lending, especially since they did not possess the expertise to evaluate loan riskiness.

Since 1991, market share of the consumer credit market has fallen by almost 10 percentage points, while that of all the other participants has risen. Although the banking sector is still the market leader, nonbank financial companies are becoming the biggest single actors. As deregulation reduces the funding advantages of large banks, the future winners will be determined more by management efficiency, credit evaluation expertise and marketing skills than the historically based market sector of which a company happens to be a member.

During the lending boom of the late 1980s consumer credit as a percentage of disposable income in Japan passed the American rate and then leveled off at 23 percent. This share is related to the long-term credit needs of households as they plan their consumption over periods of high needs and relatively low income. Although such short-term factors as interest rates and consumer confidence might affect this ratio, the number over the longer horizon likely will hover around the current figure. The interest burden on consumers, which had jumped sharply in 1989, now is back to 1980's level. On the basis of previously acceptable norms, the current interest burden leaves room for modest growth of consumer credit in line with income growth.

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Weekly Review

Japan's Economy Surged Ahead Of Consumption Tax Boost by Douglas Ostrom

Japan's economy demonstrated again in the first three months of this year that it retains enormous latent strength. Economic Planning Agency-compiled statistics on the gross domestic product showed that the economy preliminarily expanded at a real, annualized 6.6 percent clip in the January-March period. Temporary factors were given principal credit for the surge, but longer term forces also were at work. Whether the first quarter's performance can be sustained in coming months is far from clear, however.


Despite Changes, Japanese Mergers Still Difficult by Jon Choy

As Tokyo pursues economic deregulation and restructuring, increasing numbers of local companies will be exposed to the rigors of free-market forces and international competition. That prospect led analysts to predict shakeouts in many industries, particularly the financial sector. A new age of friendly mergers and acquisitions consequently seemed to be dawning in Japan. Recent developments suggest, however, that this may be a false dawn.


Japan, Russia Agree To Cooperate On Resource Development by Barbara Wanner

Reflecting renewed interest in both Japan and Russia in improving long-strained bilateral ties, Foreign Minister Yukihiko Ikeda and Russian First Deputy Prime Minister Boris Nemtsov agreed at a June 9 meeting in Tokyo that the two countries would strive to reinvigorate two-way trade and the broader economic relationship. The pair of officials further concurred that codevelopment of the Russian Far East &emdash; an area rich in oil, natural gas, forests and other resources &emdash; would be the focus of the push to expand bilateral economic ties.



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