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There are basically two schools of thought on the root cause of Japan's 10 year long recession. The one school asserts the problem is bad loan or the inability of financial institution to supply capital to needy growth industry. The other attributes the economic mess to the lack of investment opportunity mainly caused by delayed restructuring efforts by industry. Is it money as such or borrowers that lacks? I tend to view bad loan as a secondary\problem. Seems to me, the fact that Japan experienced a mini doc.com-babble a few years ago illustrates that money is there and people are willing to
invest their money once they find opportunity. Of course truth is probably somewhere between, though.
As everyone knows, Japan is one of those countries, which accumulated enormous foreign asset through decades-long trade surplus like the UK and US. did. Japan may still be the biggest creditor in the world (probably not already.) There is, though, striking difference between Japan,
and the UK and US in terms of the denomination of their foreign assets. For the UK, it is pound denominated asset that it has and had outside the UK, for the US, it is dollar denominated asset that American people loaned to
other countries. That way, they ensured stable ROI. But it is not Yen asset that Japan has outside Japan. All is in dollar. In fact Japan is said to be the first large creditor in the history who loaned capital to the outside
world in foreign currency. As I see it, this is tragedy for Japan. All hard earned money invested in dollar denominated securities lost significant part of their value in the wake of currency evaluation. If you are a strongest creditor, you usually do not have to take currency risk. The reason Japan did take the risk is that since its financial market is underdeveloped due to inflexible regulations, it was almost impossible for non-residents to come to the Tokyo market and issue bonds in Yen. So, Japanese banks in stead
went to NY to buy Treasury Bonds. In this sense, on a longer term, a financial aspect seems also important. Japanese financial regulators deserves srtong critisism. People cannot live on past investment.
Toshi
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