In Cash-Rich Japan, World's Financial Woes Inspire a Grand Plan

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/18/AR2008101801688.html


By Blaine Harden
Washington Post Foreign Service
Sunday, October 19, 2008; A21



TOKYO -- Kotaro Tamura, an investment banker turned Japanese lawmaker, has an immodest proposal for healing the sick global economy, making all Japanese richer and compelling the United States to be more deferential toward Japan.

"We are in a special position because we have huge money," Tamura said, referring to about $950 billion in government foreign reserves, $1.5 trillion in public pension funds and $15 trillion in personal financial assets, about $8 trillion of which is on deposit at shockingly low interest rates in Japanese banks.

"We should send the signal that we are ready to save the world with this money," he said in an interview.


Tamura leads a group of 65 lawmakers from the ruling Liberal Democratic Party who have proposed to Prime Minister Taro Aso that Japan treat the global financial meltdown "as a huge opportunity for us."

They are urging the government to inject some of its abundant cash into troubled U.S. and European banks, in return for equity, and to purchase distressed corporate assets at fire-sale prices.

"The economy of every major power has crashed, and Japan has the least tainted market in the world," Tamura said.

So far, Aso's government has said nothing about any such investments. Asked what the prime minister thinks of the idea, Aso's spokesman declined to comment.

In recent days the government has said only that it would assist developing countries by contributing money to a rescue effort organized by the International Monetary Fund.

The chronically risk-averse habits of Japanese savers, who keep most of their trillions in accounts that pay less than 0.5 percent interest a year, suggest that Tamura's plan to save the world and make Japan richer is unlikely to generate much popular support.

"We are a bank-centered nation that avoids risk, even good risk," said Akira Kojima, chairman of the Japan Center for Economic Research.

Kojima called the idea of investing some of Japan's cash in the midst of the financial crisis a good one, if done prudently. "It could be a catalyst for changing Japanese investment management strategy," he said.

At the same time, he said, it would be all but impossible to carry out, given the conservative bent of the government and the public. "The finance system is too rigid," he said.

Even when Japan's own banks were crumbling during the country's severe financial crisis in the 1990s, there was strong popular opposition to the government's decision to save banks with public money.

Still, Japan's chronic failure to earn decent returns from its mountain of savings is a subject of constant debate in this country.

"The use of the savings in Japan has not been successful for a long period," Hidehiko Sogano, an associate finance director at the Bank of Japan, said in a recent interview. "However, at the current moment, we do not have any consensus among the public to use them in more aggressive investments."

Proposals for Japan to follow the examples of China, Singapore, Norway and other export-rich countries in creating a sovereign wealth fund for foreign investment have gone nowhere.

It is a hard local sell, concedes Tamura, 45, the member of parliament who is the country's most outspoken advocate of such investment. "Our people hate risk, so we have to make a very good case, and that is easy to do," he said.

Tamura is trying to "persuade our people" to face facts: Japan's economy and its stock market depend on the vigor of the U.S. economy, particularly the willingness of American consumers to start spending lots of money again.

"Look at the Japanese stock market," he said. "It is diving faster than the U.S. market. The recession in the United States is our problem."

The stock market in Japan has lost about half its value this year, with a quarter of that loss occurring last week.

As the world's second-largest economy, Japan has a peculiar mix of monetary muscle and financial vulnerability. Its foreign reserves are second only to China's $1.9 trillion worth. But it must service the world's most onerous public debt burden -- 182 percent of its gross domestic product, compared with about 36 percent in the United States -- while meeting the mushrooming pension and medical needs of the world's oldest population.

And Japan's export-dependent economy is closely linked to that of the United States. Japan began sliding into recession this past spring after U.S. sales of Japanese cars started to decline.

Tamura argues that the fix is deceptively simple.

"Everything is very cheap right now [in world stock markets], and 10 years from now we would make very big money," he said.

His plan calls for Japan to hire outside financial experts to manage its investments in Europe and the United States. "They should be easy to find because they are all losing their jobs," he said.

Finally, Tamura said, Japan could gain much more than mere money by coming to the aid of the United States and its many distressed companies. "If we can save the United States economy, then the U.S. government will owe us in other ways," he said.

A U.S. move that has offended many Japanese is the Bush administration's decision last weekend to take North Korea off its list of states that sponsor terrorism.

The Japanese public vehemently opposes the delisting because North Korea has refused to provide satisfactory information about the fate of eight Japanese citizens who were abducted by North Korean agents during the 1970s and '80s.

"If we make the proper moves with our money, we can gain diplomatic fruit," Tamura said. "We can insist that the United States put more pressure on North Korea. As I said, this is a huge opportunity for us."