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NO. 22 — June 12, 1998

 

Feature Article

JAPANS FINANCIAL MARKET BIG BANG: THE FIRST SHOCKWAVES by Jon Choy

Summary

Concerned that domestic financial services markets were falling behind in the competition among global money centers and were dragging down the economy, Prime Minister Ryutaro Hashimoto pledged in late 1996 to ignite a "Big Bang" under them. Japan's financial markets will be "free, fair and global" by the end of 2001 as a result of the plan, which was inaugurated April 1 with the full liberalization of foreign exchange trading.

The first consequences of the Big Bang already are evident, and not all of them are to Tokyo's tastes. Domestic financial institutions — many weakened by large amounts of nonperforming loans — are circling the wagons against an expected challenge by offshore financial services providers. The foreigners are not disappointing their Japanese competitors, moving in quickly to take advantage of new opportunities.

While initial indications are that the Big Bang is shaking up Japan's financial markets and financial industry, it will be several years before the process is complete. This extended time frame, the uncertain future of Mr. Hashimoto's premiership and unforeseen developments in global financial markets make it difficult to predict whether the Big Bang will proceed as planned and yield the expected results.

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Weekly Review

JOBLESSNESS IN JAPAN CLIMBS INTO UNCHARTED TERRITORY by Douglas Ostrom

Japan's unemployment problems are going from bad to worse. The seasonally adjusted jobless rate rose to 4.1 percent in April, up from 3.9 percent in March. The new figure set a record for the years since 1953 that the Management and Coordination Agency has surveyed unemployment. Although Japan's jobless number remained slightly lower than that for the United States, which averaged 4.3 percent in both April and May, the data are particularly worrisome for several reasons.

 

IMF, JAPAN WELCOME INDONESIA DEBT DEAL; RUPIAH REMAINS WEAK by Eric Altbach

Jakarta and major foreign creditor banks reached agreement in Frankfurt June 4 on a plan to restructure $80 billion of foreign debt owed by Indonesian banks and corporations. The plan will provide some much-needed breathing room for firms that have been forced to suspend payments on foreign obligations due to the massive devaluation of the rupiah and continuing political and economic turmoil in Indonesia. However, many analysts question whether the deal will be enough to stabilize Indonesia's battered currency. They point out that the country still faces a long period of painful economic restructuring and an uncertain political future.

 

U.S.-JAPAN MARITIME TIES ENCOUNTER ROUGH SEAS by Jon Choy

According to both Federal Maritime Commission officials and U.S. shipping executives, last fall's pact with Tokyo to reform and liberalize Japanese harbor practices is not producing the desired results. In recent months, FMC commissioners have telegraphed their disappointment and have hinted that the independent agency will act vigorously to achieve its goals. Although no specific deadline has been mentioned, their comments clearly show that the FMC's patience is being tested.

 

Notes:

In a rare bit of good news for foreign companies struggling to increase sales in economically slumping Japan, outsiders, mainly U.S. suppliers, gained nearly six percentage points of share in the world's number-two semiconductor market in 1997. The 33.3 percent all-time-high annual figure, however, was largely a by-product of record-breaking results in the year's second quarter. American, South Korean and European manufacturers filled little more of Japan's chip requirements in the October-December period than they had in 1997's first three months.

For the second year, the Clinton administration and big U.S. computer companies are questioning whether Japan's public sector is following the nondiscriminatory and transparent procurement procedures of a January 1992 agreement designed to give industry-leading American competitors a shot at winning more of the government's computer equipment business. The doubts resurfaced when the Computer Systems Policy Project reported June 9 that in 1996 foreign manufacturers supplied just 9.3 percent of the mainframes, servers, workstations and other midrange systems acquired by the national government, its local counterparts and such quasi-public organizations as Nippon Telegraph and Telephone Corp. and East Japan Railway Co. That result reflected two years of backsliding after the likes of International Business Machines Corp., Hewlett-Packard Co. and Digital Equipment Corp. had managed to lift their share of the government-funded computer hardware market to 13.7 percent in 1994 from a preagreement total of 6.6 percent.

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