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NO. 2 — January 16, 1998

 

Feature Article

FROM COLOSSUS TO CASUALTY: THE TRANSFORMATION OF JAPAN'S INSURANCE INDUSTRY by Douglas Ostrom

Summary

A decade ago, outside observers saw Japan's insurance industry as a juggernaut, growing in synch with the rest of the rapidly expanding economy. The industry's position as a major international investor beginning in the 1980s brought it still more scrutiny around the world as analysts tried to guess its next move.

Developments in recent years have resulted in recognition of a less favorable sort. Although Japanese insurers largely have escaped the scandals afflicting their brethren in the banking and the securities industries, foreign analysts argue that they share those industries' lack of international competitiveness. Like bankers and brokers, insurers have endured unprecedented financial difficulties, including bankruptcies, recently.

Japan's insurance industry still is the subject of international attention — but mainly because foreign observers wonder whether it will self-destruct and, if so, what the global implications might be. Moreover, to an even greater extent than other financial services, the insurance business in Japan was the focus of intense, sometimes acrimonious, negotiations between Washington and Tokyo in the mid-1990s. Recent bilateral and multilateral agreements as well as Japan's Big Bang of financial deregulation promise to bring change to the industry. However, reform could occur at a slower pace than in other financial services.

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Weekly Review

POLICYMAKERS DESCRIBE DISMAL OUTLOOK FOR FY 1998 by Douglas Ostrom

The Japanese government's annual exercise in developing an economic outlook for the next fiscal year is not fun anymore. In the 1960s policymakers typically picked a growth figure that, by global standards, seemed ridiculously high but that usually ended up being far too pessimistic. Dismal annual projections are now the norm, as illustrated by the FY 1998 outlook adopted in late December. Real gross domestic product is expected to expand by an anemic 1.9 percent in the 12 months beginning April 1 on top of virtually no growth in the current fiscal year (see Table). Moreover, the prediction is at risk of failing to keep up with even more rapidly deteriorating actual results or with the gloomy forecasts coming from the private sector.

 

AFTER LOSSES IN 1997, INVESTORS FEAR 1998 by Jon Choy

With Japan's financial sector in turmoil and the economy moribund, 1997, not surprisingly, was a disappointing year for the equity market. While shares of export-oriented companies were buoyed by the yen's depreciation against the dollar, this support was not enough to prevent the overall market from sinking under the combined weight of the financial sector's woes and the generally poor state of the rest of the economy. As Japan's key trading and investment partners in the rest of Asia were shaken by sharp currency depreciations, abrupt domestic interest rate rises, spreading bankruptcies and stock market plunges, investors, whether domestic or foreign, became even more pessimistic about putting money into Japanese shares. Government and stock exchange officials have sought a remedy for the market's malaise, but critics say that these efforts are wasted because they treat only the symptoms of the economy's condition, not the illness itself. With so many uncertainties clouding the outlook for Japan and other Asian economies, market watchers are not bullish on prospects for 1998.

 

U.S. VISIT YIELDS LITTLE FOR SAKAKIBARA, OMI by Eric Altbach

Eisuke Sakakibara, the Ministry of Finance's vice minister for international affairs, and Koji Omi, director general of the Economic Planning Agency, met separately with top officials from the U.S. government and international financial organizations in trips to Washington and New York City January 7 through January 9. Held against the backdrop of the yen's continuing fall against the dollar and the ongoing slide in Asian currency and stock markets, the discussions seemed to yield no tangible results. Neither American nor Japanese officials offered any indication that there would be near-term cooperation between the Department of the Treasury and the Bank of Japan to intervene in currency markets to support the yen. And, despite deepening concerns that the International Monetary Fund-led bailouts for Indonesia, Thailand and South Korea are failing to resolve economic problems in those countries, Messrs. Sakakibara and Omi gave no hint that Tokyo would actively support the efforts of delegations from the United States and the IMF that went to Asia in mid-January in an attempt to salvage the deteriorating situation there.

 

SHINSHINTO BREAKUP LEADS TO NEW OPPOSITION PARTY GROUPINGS by Barbara Wanner

Shinshinto chief Ichiro Ozawa's December 27 announcement that he was disbanding the largest opposition party surprised few seasoned political pros in Tokyo or Washington. An amalgamation of nine right-to-center parties, the 172-member Shinshinto had teetered on the brink of dissolution since its December 1994 inception due to frequent intraparty leadership and policy-related squabbles. Moreover, following Shinshinto's disappointing performance in the October 1996 lower house elections, Mr. Ozawa increasingly had come under fire for both his questionable political strategies as well as his blunt, authoritarian leadership style. The party's long-anticipated breakup was not big news in Nagata-cho, Japan's Capitol Hill.

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