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FINANCIAL TIMES-1999年6月21日付

Focus moves to unemployment

FINANCIAL TIMES
The belief that the financial crisis is over means that the political drive for reform has to some extent fizzled out
Last summer, fears that another financial crisis in Japan could trigger turmoil in international markets propelled the ruling Liberal Democratic Party (LDP) into action and led to a series of measures aimed at restoring health to the financial sector.

Young politicians in the LDP were given an unprecedented role, and took the initiative in formulating legislation to revitalise the financial industry. At the time it appeared the politicians had finally begun to assume responsibility for policy formation.

Less than a year since then, the political momentum behind financial reform has fizzled out.

Politicians in the LDP and bureaucrats alike openly proclaim that the financial crisis is more or less over. After the government injected Y7,500bn into 15leading banks in March, Kiichi Miyazawa, the finance minister, proclaimed that "this will restore the financial industry to health".

To some extent the weakened sense of crisis and diminished interest among Japan's political elite in financial reform is understandable.

For one thing, the establishment last June of the Financial Reconstruction Commission (FRC), which is charged with cleaning up the banking sector, and the injection of public founds into the bank have resulted in some stability in the financial sector.

The stated determination of Hakuo Yanagisawa, head of the FRC, to get the banking sector to restructure and prepare for full market forces to shape the industry, has allowed the political leadership to relax a little and turn its attention to other issues.

"The main difference between last year and this year is that they have to help themselves and the regulators are much more determined to clarify what is black and what is white," says Yasuhisa Shiozaki, an LDP member of the Upper House.

For many political leaders, with the financial sector apparently safe in the capable hands of Mr Yanagisawa and others, there is a move critical issue than financial reform that needs to be addressed-unemployment.

"With national elections coming up, the LDP's main interest is unemployment. Because things have become less critical, there is no big push behind financial reform," notes Shigenori Okazaki, political analyst at Warburg Dillon Read in Tokyo.

On the positive side, the lack of political focus on the financial sector has meant an absence of political meddling in the regulators' activities, allowing a number of important changes to be introduced unopposed, "There is a lack of opposition to a lot of measures which cumulatively adds up to change," notes Alexander Kinmont, strategist at Morgan Stanley Dean Witter in Tokyo.

For example, the process of changing the commercial code has already started, and that in itself is "remarkable", he says.

What is worrying, however, is that with elections for the Lower House scheduled before next autumn, there are signs that some members of the LDP appear to be backtracking on certain aspects of the reforms, Specifically, the have been calls within the LDP for a delay, or even a reconsideration of the pay-off system, which is scheduled to be introduced in April 2001.

Currently, if a bank fails depositors can expect to get the full amount of their deposits back, Once the pay-off system comes into effect, however, depositors will only be guaranteed up to Y10m of their deposit, regardless of how much they actually have in the bank.

As an incentive for banks to get their act together, the introduction of the pay-off system is expected to have a significant effect. Unless a bank can convince its depositors that its future is secure, it is likely to see a sharp decline in deposits, if not a run.

The fear among those calling for a delay of the pay-off system is that regional banks, many of which are uncompetitive, will suffer a substantial decline in deposits, affecting their ability to provide loans to local businesses.

The Tokyo Chamber of Commerce, which is concerned about the impact the pay-off system could have on the ability of its members -small and medium-sized businesses - to borrow funds, has publicly stated it would prefer to see a delay.

The Yomiuri Shimbun, a national daily newspaper seen as providing a relatively accurate view of LDP thinking, has been calling strenuously for a delay in the pay-off system.

Mr Yanagisawa has stated that the start of the pay-off system will go ahead as scheduled and that he is determined to carry out reform of the financial sector to ensure that there are no big collapses after March 2001.

So far his determination has been able to keep calls from the LDP for a delay from gathering greater momentum.

In the longer term, the concern is that without even bolder financial sector reforms than seen today, none of Japan's financial institutions will be able to compete on the global stage.

"The [restructuring] plans put forth by financial institutions are not convincing." says the LDP's Mr Shiozaki, who wonders whether under these circumstances even a handful of Japanese banks can survive as global players.

If that is the case, this will have repercussions on the Japanese manufacturing industry which needs a strong and internationallyactive financial sector as a channel for the kind of information needed to remain globally competitive, points out the LDP's Mr shiozaki.

"It cannot be said that even if Japan's financial industry doesn't survive [global competition] we will still have a strong manufacturing industry. We must rethink the financial sector industrial policy," Mr Shiozaki warns.