One of my respected ex-MITI official asked me recently, "Tanaka san, is everybody in METI aware of the new mission of the Ministry?" "Yes, of course. "E" of the METI stands for economic restructuring and everyone knows this." I replied. He further asked " Then, does everyone understand that old MITI methodology for post-war industrial growth is no longer viable and you have to scrap all these tools with success story. In the end when economic reform cannot be done, METI will have no excuse and be blamed for failure." My reply are "?" and "!"
Here is a challenging case for METI. Large-scale retail store problem. In early 90s Bubble economy burst , but this coincided with the time when "Daiten ho" , the Large scale retail store law, was substantially deregulated. Bubble money which lost its target, rushed to two sectors, namely Jusen (Housing Finance Corporations) and large retail stores. You know the story of Jusen and Sogo; when main-banks cannot sustain borrowing institutions by debt forgiveness or credit roll-over, they must fall. By the way, the US government was pressing MITI to deregulate Daitenho probably without knowing this bubble consequence. (Attached chart)
A traditional tools for solving excess capacity is a depression cartel. But we gave it up years ago. Maybe the Industrial Revitalization Law. But low interest loan and other traditional incentives are too weak to convince ailing firms to exit. Tradtional MITI tools are not enough to cover these financially originating problems. We must redesign an exit policy in cooperation with the financial and judicial authorities. The Civil Rehabilitation Law, Japanese Chapter 11, was enacted last year as a part of the solution but further improvement is needed.
Political leadership can be a very important and possibly unique driving force to solve these remaining bad-loan problems. Mr. Shiozaki, a well-known Diet member as a new breed LDP, said in our conference of "Balance sheet Economics" last November, "It is a time for political leadership, determination and action. We have to have a crystal clear understanding of the current grave situation. Industry and finance world should act together and we need real blood shedding and maybe public money." He also said that if no driving force but market forces, it costs much more blood shedding in the end.
Consumption to the end of 2000 wasn't too bad relative to the US. Yen is getting weaker. Financial Times of 01/1/12 says " Thus far, in other words, currency markets have given Japan's exporters a small New Year present; but it would be deeply dangerous for Japan's government to hope that this gift alone can now solve the country's underlying economic woes.
Some good news. Yanagisawa, Minister of Financial Agency, reportedly said that collaboration between finance - industry- construction policy authorities is under consideration. This may be the first step towards ending of the never-ending NPL problem.
Nobuo Tanaka
Executive Director, Research Institute of Economy, Trade and Industry, M.E.T.I.
e-mail: tanaka-nobuo@meti.go.jp
tel: 03-3501-1362 fax: 03-3501-8391
The opinions expressed or implied in this paper are solely those of the author, and do not necessarily represent the views of the Ministry of Economy, Trade and Industry (METI), or of the Research Institute of Economy, Trade and Industry (RIETI).
