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No. 10 — March 12, 1999

 

Feature Article

JAPAN'S BANKING INDUSTRY: THE 'CONVOY' DISPERSES IN STORMY SEAS by Jon Choy

Summary

Drained by years of anemic growth at home, crushed under a mountain of nonperforming loans, worried that domestic and foreign borrowers will default, challenged by new competition from offshore financial institutions and confronted by new regulations and regulators, Japanese banks face a difficult future. Government officials and bank executives finally have acknowledged that the old ways of doing business no longer are viable in today's rapidly changing global financial marketplace. That is particularly true of the "convoy" system, in which banks moved together under the guidance of the Ministry of Finance, making changes only at the pace of the slowest member. Banking authorities and banks themselves consequently have begun to search for alternative solutions to restore this critical industry's health and competitive vigor.

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Weekly Review

TOKYO RESPONDS TO RECORD-HIGH UNEMPLOYMENT by Douglas Ostrom

Japanese policymakers long have had a well-deserved reputation for paying minimal attention to unemployment, preferring instead to deal with labor issues indirectly through policies that affect the business environment. With joblessness already at record levels and still rising, however, Tokyo may be changing course — although experts on both sides of the Pacific remain skeptical. Moreover, they disagree about what the contours of an effective jobs strategy for Japan would be.

 

TOKYO PLANS FIXES FOR GOVERNMENT PENSION SYSTEM by Jon Choy

The inevitable rapid increase in Japan's ranks of senior citizens — both in absolute numbers and as a share of the population — has heightened concerns about the health of the nation's private and public pension systems. Corporations have begun to admit that their pension plans are underfunded and are moving to address the shortfall (see JEI Report No. 9B, March 5, 1999). Now it is Tokyo's turn. The Liberal Democratic Party approved changes March 5 to government-run pension plans aimed at ensuring their solvency for the next several decades.

 

SUSPENDED U.S. MILITARY DRILL ON OKINAWA HIGHLIGHTS UNRESOLVED PROBLEMS by Barbara Wanner

Washington's March 4 decision to postpone a parachute training drill scheduled two days later at Kadena Air Base in Okinawa prefecture has refocused attention on Okinawans' continued aversion to the high-profile U.S. base presence. The 1996 comprehensive base consolidation agreement concluded by the bilateral Special Action Committee on Okinawa featured a plan to relocate parachute training from the Kadena base to an airfield on Ie Jima. This small island, like the main Okinawan island, is one of the Ryukyu chain and is considered part of Japan's southernmost prefecture.

 

JAPAN EYES CLOSER TIES WITH CENTRAL ASIA; GEORGIAN PRESIDENT VISITS TOKYO by Marc Castellano

The Japanese government, following up on an initiative launched in July 1997 by then-Prime Minister Ryutaro Hashimoto, has begun a new effort to promote closer ties with the countries of Central Asia and the Caucasus. The mountainous area, known as the Silk Road region after the ancient trade route that linked China and Imperial Rome, is home to eight independent states that broke away from Russia when the Soviet Union collapsed in 1991. Much of the vast region is underdeveloped and depressed from decades of debilitating Soviet-era economic mismanagement. The hard transition to a market-oriented economy has produced additional strains. However, Central Asia and the Caucasus are believed to have tremendous oil and natural gas reserves — the key to their strategic importance for Japan. As part of Tokyo's effort to build on Mr. Hashimoto's 1997 opening, Prime Minister Keizo Obuchi invited Georgian President Eduard Shevardnadze to Japan for a five-day visit beginning March 4.

 

NOTES

Clinton administration trade negotiators no longer try to put a positive spin on the discouraging prospects for broad regulatory reform in Japan, knowing that experts on both sides of the Pacific will see through this attempt at window dressing. Nonetheless, they continue to prod the bureaucracy for change, no matter how piecemeal, convinced, like most economists, that sweeping deregulation and structural reform offer Japan the best chance for sustainable growth — not to mention giving American and other foreign competitors a better shot at doing more business in the world's second-largest economy.

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