The process in Japan for dealing with companies in financial distress is cumbersome, slow and ineffective compared with what happens in the United States or Great Britain. Problems in court-based bankruptcy and corporate reorganization proceedings and in private workouts of troubled companies have slowed restructuring and prolonged the pain suffered by financial and nonfinancial companies as well as by their employees.
In general, courts do not automatically protect companies from creditors, a constraint that reduces the attraction of court-based resolution of distress. Moreover, private restructuring of assets and liabilities is hampered by laws that restrict the ability of banks to accept equity in exchange for nonperforming loans. The weakness of the system has left an opening for yakuza (gangsters) to perform an economically useful role but at the cost of strengthening their position in society.
Policymakers are sensitive to these issues. In response to the acceleration of business failures over the past two years or so, corporate leaders and government officials have proposed various measures some quite radical to amend the relevant laws. Although these recommendations have the support of two advisory councils reporting to Prime Minister Keizo Obuchi, it still is not known when, or even whether, they will be presented to the Diet for legislative enactment.
LAWMAKERS PLAN BUSY EXTENDED DIET SESSION by Barbara Wanner
Legislators in Japan can forget about a summer vacation this year. The Diet's lower house approved a 57-day extension of the regular session June 17 that will keep parliamentarians occupied with matters of national interest through August 13. Some of the items on the agenda aimed at addressing the country's economic ills are expected to pass with ease. However, the manner in which other issues those related to electoral reform, designation of national symbols and national security are handled could have important political ramifications.
REGIONAL BANKS MADE TO FACE THE BAD-LOAN MUSIC by Jon Choy
Having prodded major domestic banks to implement significant restructuring programs, the staffs of the Financial Supervisory Agency and the Financial Reconstruction Commission have turned their attention to other financial institutions, including regional banks, insurance companies and nonbanks. In an unmistakable message to regional bank executives, the two financial watchdogs recently shuttered three such institutions Kokumin Bank, Ltd. (April 11), Kofuku Bank, Ltd. (May 23) and Tokyo Sowa Bank, Ltd. (June 12) after FSA inspectors found that their capital bases had become grossly inadequate. The crackdown is expected to continue as the FSA extends its inspections throughout the second level of Japan's banking system and the FRC issues tough eligibility requirements for regional banks to receive capital infusions from the government.
TOKYO RECALIBRATES ANTITRUST POLICY by Douglas Ostrom
Economic changes in Japan have provoked a reassessment of the nation's half-century-old Antimonopoly Law. In some cases, firms have argued successfully that the law impedes their ability to reorganize themselves in the interest of greater efficiency. In other instances, Tokyo has tightened certain provisions of the statute in a demonstration of its faith in the competitive principles behind the law. At the same time, the international dimensions of antitrust policy have received fresh recognition through decisions by Japan's Fair Trade Commission involving international mergers as well as through an agreement between the United States and Japan to cooperate on antitrust problems.
JAPAN TO AID MONGOLIA by Marc Castellano
Japan pledged more aid for Mongolia than any other donor at the June 22 Seventh Assistance Group Meeting, a World Bank-sponsored development conference held in Ulan Bator, Mongolia. Tokyo's ¥13.9 billion ($115.8 million at ¥120=$1.00) contribution accounts for roughly one-third of the proposed $320 million financial assistance package drawn up by officials from international development organizations and a group of 25 countries, including Australia, Canada and the United States. The grants and the loans will be distributed between July 1999 and December 2000.
Tokyo might dismiss as settled the question of Japan's openness to imports of consumer photographic products. Washington does not, the World Trade Organization's blanket January 1998 rejection of White House charges that the government had skewed conditions of competition against outsiders notwithstanding. An interagency team formed in February of last year and cochaired by the Office of the U.S. Trade Representative and the Department of Commerce continues to track how well market realities jibe with Tokyo's assertions to the WTO that it neither tolerates restraint of trade in photographic film and paper nor pursues policies that limit in any way sales of the foreign product (see JEI Report No. 33B, August 22, 1998).