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No. 43 — November 13, 1998

 

Feature Article

JAPAN'S ROLE IN GLOBAL FINANCIAL MARKETS: GETTING CREDIT FOR BEING THE WORLD'S LARGEST CREDITOR by Douglas Ostrom

Summary

Japan and the United States have dramatically different views of Japan's role as the world's largest creditor and the U.S. position as the biggest debtor. Many Japanese consider their nation's ranking a source of quiet pride, particularly since the United States, which lately has not hesitated to criticize Tokyo for ineffective economic policy choices, is in a mirror-image situation.

The Japanese perspective, while apparently based on common sense, takes little note of either the historical or the continuing role of the dollar in boosting global liquidity. It also contrasts with the opinion, widespread in the United States, that America can play a more useful world role by buying more from abroad than it sells. Such a function implies that the United States will become an increasingly larger international debtor over time.

Not a few analysts on both sides of the Pacific have described situations in which Japan could exploit what they regard as its advantageous creditor position. On examination, however, most of the hypothetical private- or public-sector actions would not serve Japan's interests, much less global ones. In this context, recent bond-rating agency moves toward downgrading Japanese government debt are not unreasonable — the apparent contradiction with Japan's status as a major international creditor notwithstanding.

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Weekly Review

TOKYO NAVIGATING TORTURED FISCAL COURSE by Jon Choy

The cabinet of Prime Minister Keizo Obuchi and his Liberal Democratic Party are charting a new course for fiscal policy that they hope will bring Japan's economy back to health. Standing between them and this destination, however, are many political and economic "rocks," any of which could be disastrous for the fiscal ship of state. Because the LDP lacks a majority in the upper house of the Diet, Mr. Obuchi needs at least 23 opposition party votes in that chamber to ensure passage of nonspending legislation, particularly tax bills. Although under Japan's constitution, the LDP's majority in the lower house guarantees eventual enactment of bills authorizing expenditures, the ruling party is soliciting the views of potential opposition party allies on stimulative fiscal actions. Navigating this political strait is delaying the announcement of new tax and spending measures. It also is forcing the LDP to consider novel policies.

 

JAPANESE INTEREST RATES ENTER NEGATIVE TERRITORY by Douglas Ostrom

The Japanese economy has achieved another dubious distinction. Although only a few months ago analysts were saying that negative interest rates were impossible, some lending and deposit rates briefly dipped slightly below zero in early November. In this upside-down world, depositors were willing to pay for safekeeping, while borrowers had to be paid to take money. The phenomenon appeared to be short-lived and confined to financial markets beyond the reach of individuals. Nonetheless, it highlighted again the extraordinary circumstances of the Japanese economy, a situation made even more remarkable by unstable global financial markets.

 

OKINAWAN GOVERNOR'S RACE FOCUSES ON HELIPORT, ECONOMIC NEEDS by Barbara Wanner

Okinawa's November 15 gubernatorial election may yield a new prefectural leader and improved relations between Tokyo and Naha. It also may force the United States and Japan to reconsider a key element of a 1996 plan to consolidate the U.S. base presence there. Both candidates — incumbent Governor Masahide Ota and businessman Keiichi Inamine — oppose relocating the U.S. Marine heliport at Futenma Air Station to an as-yet-unbuilt offshore facility near Nago, a coastal town on the northeast end of the main Okinawan island. However, while Mr. Ota, an ardent critic of the U.S. base presence in Japan's southernmost prefecture, insists that the heliport be moved to another part of the country or to Guam or Hawaii, Mr. Inamine has proposed that a ground-based replacement be built in an undeveloped area further north of Nago. That facility would be used for military as well as civil aviation. Moreover, the U.S. military would vacate the base after 15 years, according to the Inamine plan.

 

IMPACT OF ELECTIONS ON FOREIGN POLICY AGENDA, U.S.-JAPAN RELATIONS UNCLEAR by Eric Altbach---

President Clinton and the Democratic Party won what many analysts termed a stunning victory in the November 3 midterm congressional elections. Although still the minority party in both houses of Congress, Democrats gained five seats in the House of Representatives and maintained their standing in the Senate. However, while most pundits agree that Mr. Clinton and his party have been strengthened by the election results, it is not yet clear how or even whether this change in political fortunes will affect U.S.-Japan relations or the White House's broader foreign policy agenda.

 

NOTES

Neither Deputy U.S. Trade Representative Richard Fisher nor Deputy Foreign Minister Koichi Haraguchi commented after meeting in Washington November 6 to review the work of the six expert-level groups responsible for advancing the objectives of the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy. Their silence could be interpreted in any number of ways. It might have been meaningless, the result, for instance, of tight schedules. More likely, though, the two sides had decided not to put on public display the impasse created by a U.S. deregulation agenda that Japan found to be too bureaucratically or politically challenging.

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