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No. 32 — August 20, 1999

 

Feature Article

RESTRUCTURING JAPAN'S CORPORATE BALANCE SHEETS: THE DEVELOPMENT OF ASSET-BACKED SECURITIES by Arthur J. Alexander

Summary

As of March 31, 1999, financial institutions in Japan had an outstanding stock of more than ¥12 trillion ($100.2 billion at ¥120=$1.00) of yen-denominated asset-backed securities. An additional quantity — as large as the domestic stock, according to some estimates — had been floated in international markets. This method of financing is relatively new. The Bank of Japan only began to count it as a separate item in 1998, with figures going back to the last quarter of 1997. The substantial quantity of securitized assets indicates a transformation in the way that Japanese businesses manage their balance sheets.

The surge in asset-backed securities also reflects legal and regulatory accommodations that belie the common, all too often accurate, characterization of Tokyo's approach to market liberalization as stodgy. Several changes instituted since the early 1990s have removed barriers that previously precluded or limited the use of asset-backed securities. Although these initiatives have involved interministerial turf fights, Tokyo's response suggests what can be accomplished when business leaders, politicians and bureaucrats agree on a common policy direction.

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Weekly Review

PLANS FOR TRIPARTY GOVERNMENT BACK ON TRACK . . . FOR NOW by Barbara Wanner

The eleventh-hour agreement between Prime Minister Keizo Obuchi and the leader of the Liberal Democratic Party's junior governing partner, Liberal Party chief Ichiro Ozawa, on the handling of an electoral reform bill either reflected the former's genius at compromise or the latter's political pragmatism — or perhaps a combination of both. Averting a breakup of their seven-month-old ruling arrangement, Messrs. Obuchi and Ozawa agreed August 13 to postpone full Diet consideration of legislation to reduce proportional representation in the 500-member lower house by 50 seats until the outset of a special legislative session, now expected to be convened later this year. The two seasoned politicians also pledged to implement the proposed reduction in Diet representation by the next elections for the lower house. These must be held by October 2000.

 

NEW LAWS BOOST TOKYO'S ANTICRIME POWERS AND PUBLIC'S PRIVACY CONCERNS by Jon Choy

Capping a productive extended Diet session, the Liberal Democratic Party, its Liberal Party governing ally and potential coalition member New Komeito pushed through several bills that they argued would enhance the ability of law enforcement officials to combat crime. Opposition party leaders, lawyers and citizens' advocates have warned, however, that the authorities easily could abuse their expanded powers. They also hinted that the new laws may be challenged on constitutional grounds. While a consensus exists in favor of updating Japan's laws and judicial system, opinions diverge significantly on how to achieve this goal.

 

JAPAN'S CURRENT ACCOUINT SURPLUS PLUNGED IN SPRING by Douglas Ostrom

The relationship of Japanese financial firms to global capital markets continues to be realigned, with foreign funds playing an unusually large role in this process in recent months. Fluctuations in the value of the yen — and official efforts to stabilize it — may be related to those flows. These conclusions emerge from the current account statistics for the April-June period.

 

JAPANESE AID TO FOCUS ON NATIONAL INTERESTS, EAST ASIA by Marc Castellano

Tokyo will use its huge official development assistance program in coming years to promote Japan's national and diplomatic interests. So indicated the Ministry of Foreign Affairs in the medium-term aid policy guidelines released August 11. They present the nation's development priorities for the FY 1999-FY 2003 period. Never before has the government explicitly drawn such a link. The five-year plan, the sixth since MOFA began issuing such reports, also recommends that more aid be focused on East Asia, a region that is "extremely important" to Japan.

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