Despite the enactment last year of major bank reform legislation and Tokyo's subsequent takeover of two big, troubled financial institutions, some experts are skeptical that Japan's financial sector can be rehabilitated. For that matter, 1998's near-record industrywide bankruptcy figures brought into sharp focus shortcomings in the country's approach to dealing with failing firms. Martin J. Whitman, chairman of the New York City-based Third Avenue Funds, recently discussed with JEI Senior Political Analyst Barbara Wanner why Japanese companies seem disinclined to engage in bankruptcy workouts. Notwithstanding dismal economic forecasts from both the government and private-sector analysts, he continues to see favorable investment opportunities in Japan. Mr. Whitman also offers insights into how Third Avenue Funds assesses potential business prospects in what appears to be a very bearish market.
JAPAN'S TRADE SURPLUS SET NEW RECORD IN 1998; ANOTHER HIGH IN SIGHT FOR 1999 by Douglas Ostrom
In Japan, even apparently good economic news has a way of quickly turning sour. The latest example is the Ministry of Finance's announcement that Japan's custom-clearance trade surplus surged 40.1 percent in 1998 to nearly ¥14 trillion ($116.7 billion at ¥120=$1.00), thereby topping the previous high of ¥13.7 trillion ($114.2 billion) recorded in 1986.
A decade ago, Japanese pundits might have argued and worried Americans might have agreed that a trade surplus of this size could only indicate the remarkable competitiveness of Japanese goods in world markets. To the extent that these analysts conceded a downside, it was the chance that the numbers would get the attention of a Congress looking for an excuse to impose restrictions on imports from Japan. That result arguably would be even more likely if the transpacific trade imbalance showed a similar deterioration. Since, in fact, Japan's surplus with the United States jumped last year by 33.4 percent to almost ¥6.7 trillion ($55.8 billion) (see Table 2), the highest since the ¥7.6 trillion ($63.3 billion) gap registered in 1987, trade friction would have been a foregone conclusion.
BUSINESS BANKRUPTCIES IN JAPAN APPROACHED RECORD IN 1998 by Arthur J. Alexander
Japanese bankruptcies came close to setting new highs in 1998, but a sharp decline in the last months of the year kept the aggregate figures just short of their mid-1980s' postwar records. The total number of failures of businesses with liabilities of at least ¥10 million ($83,300 at ¥120=$1.00) came to 18,988, as counted by Tokyo Shoko Research Co., Ltd., compared with the 1984 record of 20,841. Teikoku Databank Ltd., the other major compiler of bankruptcy statistics in Japan, put the total at 19,171.
While the total liabilities added up by Tokyo Shoko Research were 2 percent below 1997's figure, Teikoku Databank reported a 2.6 percent increase. Whether up or down, the bankruptcy figures are another worrying sign of continuing weakness in the Japanese economy.
OBUCHI CABINET APPROVES GOVERNMENT REORGANIZATION PLAN by Jon Choy
Prime Minister Keizo Obuchi and his cabinet took a major step January 26 toward a touted goal of the Liberal Democratic Party and its Liberal Party governing partner: reorganizing and downsizing the central government. Ryutaro Hashimoto, Mr. Obuchi's predecessor, had shepherded legislation authorizing a government reorganization through the Diet (see JEI Report No. 23B, June 19, 1998). But after the upper house gave its approval last June, the issue got bogged down by bureaucratic politics as the government worked on the details. When the LDP and the Liberal Party agreed in November to form a coalition, another layer of complexity was created and additional negotiations were required. Administrative reform was one of the subjects on which the then-opposition party had very definite views.
DEBATE ON GUIDELINES BILL DRAGS ON by Barbara Wanner
In a further effort to pave the way for expeditious Diet action in April on legislation to implement the September 1997 guidelines for U.S.-Japan defense cooperation, Prime Minister Keizo Obuchi has suggested that the Liberal Democratic Party-Liberal Party ruling coalition might be amenable to certain revisions favored by the political opposition. Specifically, during January 26 questioning before the lower house's Budget Committee, Mr. Obuchi opened the door to considering ex post facto Diet approval of Self-Defense Forces' rear-area logistical support for the U.S. military. The current legislation requires only that the government notify the Diet of SDF activities conducted in accordance with the rewritten bilateral defense plan (see JEI Report No. 13B, April 3, 1998).
SENATE HOLDS RARE HEARINGS ON TRADE; POLICY AGREEMENT ELUSIVE by Marc Castellano
With the goal of reaching a consensus on a comprehensive trade agenda for the United States, the Senate Committee on Finance convened hearings January 26 through January 28. Against a backdrop of rising tensions over steel and other fast-expanding imports, the upcoming round of World Trade Organization-sponsored global trade negotiations and a record-high U.S. trade deficit, Clinton administration economic policy members testified along with representatives from a cross section of business and interest groups. Key issues proved divisive. The White House team rallied for free trade and fast-track trade negotiating authority; opponents pushed a protectionist line and spoke on behalf of special interests.
President Clinton will use his executive authority to put Super 301 back on the books, U.S. Trade Representative Charlene Barshefsky announced January 26 on the fringes of the Senate Committee on Finance's trade hearings (see article in this issue). This souped-up version of Section 301 of the 1974 Trade Act expired in the fall of 1997 (see JEI Report No. 37B, October 3, 1997) after Mr. Clinton had resurrected it in 1994 for a two-year run and then extended the market-opening provision for 1996 and 1997. Super 301 empowers the White House to target for removal self-identified priority foreign barriers to American exports and gives it the option to retaliate if negotiations do not produce agreement to remove the cited obstacles.