JIN-227 -- Rescuing Resona is the Right Move

J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the Week's Business and Technology News

Issue No. 227
Wednesday, May 21, 2003


++ Viewpoint: Rescuing Resona is the Right Move
++ Noteworthy News
- Matsushita Closes 2 China Plants Due to SARS
- DoCoMo to Offer FOMA International Roaming from June
- Tokyo Photo Exhibit Features Camera-Phone Snaps

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++ Viewpoint: Rescuing Resona is the Right Move

Just when Japan is starting to look forward to a hot, languid summer,
a big rock gets hurled into the pond and drenches everybody. It could
have been a major corporate failure; it could have been an accounting
problem; it could have been a bitter political showdown.

As it happened, it was all three.

Last Saturday, Resona Group appealed to the government for a giant
funding injection to bring itself back to fiscal health. The call
triggered the first ever meeting of the Financial Crisis Management
Committee, and the money was immediately granted.

We reckon the 2 trillion yen government bailout and de facto
nationalization of Resona is a major development in the saga of
Japan's struggle to right its economy. Not necessarily a positive
step, but one that will certainly be looked back upon as a critical
turning point.

It might just be Japan up to its old tricks again: desperate to
maintain the status quo; willing to lavish any money on papering over
the cracks.

But it could be looked at another way. This could be the equivalent of
a hopeless drunk finally struggling through the doors of Alcoholics
Anonymous -- the reckless boozing probably won't stop tomorrow, but at
least the crucial admission of a problem is there.

We watched with mounting interest as the events of last weekend
unfolded, particularly the explanation that Resona's capital adequacy
ratios had fallen below the acceptable limit.

Throughout all this, the hardest pill to swallow was the consistent
line from the Financial Services Agency (FSA) and the prime minister
himself that this was not a financial crisis. Odd, then, that the Bank
of Japan should have flooded the money market on Monday with an extra
1 trillion yen in cash in case a panic-stricken army of Tanaka-sans
created a run on the cash machines.

The sharp drop in Resona's adequacy ratios came about through a
rigorous audit by Shin Nihon, which turns out to be doing this year's
audit on Mizuho Holdings as well. Shin Nihon's bean counters made a
bold stand on the thorny old issue of deferred tax assets (DTAs) and
decided that Resona could not count a large part of those assets (some
850 billion yen) as real capital.

As soon as Monday's opening bell rang, traders on the Tokyo Stock
Exchange quickly realized that Resona's troubles could well blight the
rest of the sector. Mizuho, UFJ and Sumitomo Mitsui all have capital
ratios that are at least 50 percent dependent on DTAs. The bailout
brings into focus the role of the FSA, the fragile position of its
minister Heizo Takenaka and the reformist resolve of Junichiro

There are those who decry the FSA as toothless, believe that
Takenaka's days are numbered, and that Koizumi will have his work cut
out to engineer victory at the next Liberal Democratic Party
presidential election. We, however, agree with a second view: While
ugly and badly planned, this move is an extremely healthy thing for
Japan. There is no doubt that the banks need recapitalizing if they
are to help kick-start the flagging economy. Takenaka has the
opportunity, now that he effectively runs the bank, to make Resona a
shining example of how the Koizumi administration is going to heave
the banking sector out of its mire. This can also be taken as the
opening salvo in the prime minister's summer campaign. The slogan? We
are prepared to push banks close to the edge, and we will do whatever
it takes to keep them alive until they're back on track.

-- The editors

"The Resona Holdings Bailout" from Money Watch No. 28


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** Matsushita Closes 2 China Plants Due to SARS

In Brief: Matsushita Electric Industrial confirmed that five of its
employees in Beijing have contracted severe acute respiratory syndrome
(SARS), forcing the manufacturer to suspend operations at two plants
in Beijing. Matsushita is the first Japanese company to shut down a
Chinese factory because of SARS, the Nikkei reports.

Commentary: China's loss will be Southeast Asia's gain. Already,
Japanese manufacturers are considering using plants in Malaysia,
Thailand, Indonesia and elsewhere. Right now, it seems that anywhere
but China will do.

The Nikkei Net (subscription required)

"China's Transition Merits Caution," from our December 2002 issue

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** DoCoMo to Offer FOMA International Roaming from June

In Brief: NTT DoCoMo announced that it will launch international
roaming services for its 3G FOMA customers on June 1. The service,
called World Wing, allows third-generation (3G) phone users to receive
and make calls on their usual cellphone number while traveling outside
Japan. Users just need to insert the UMI chip that comes with their
FOMA handsets into any GSM handset with global roaming capabilities.
Alternatively, DoCoMo will rent out a handset to use on overseas trips
for 400 yen a day.

Commentary: It's 140 yen for a 1-minute call from the US to Japan on
the World Wing service, according to Nikkei Biztech. But you'll still
need another cellphone to handle domestic calls while overseas -- you
risk paying 125 yen or so a minute if you use the World Wing service
to make domestic calls in the country you're visiting.


Nikkei Biztech

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** Tokyo Photo Exhibit Features Camera-Phone Snaps

In Brief: Camera phones aren't just for novices any more. Opening this
week in Tokyo's Aoyama district and running through June 16 is a photo
exhibit called "Keitai de Snap!" featuring the work of professional
photographer Kumio Yamada. He used a D505i from DoCoMo to shoot
landscape shots of Yokohama and Kobe, then blew up the prints to A1
size. Check it out for yourself at Museo Pictorico (Kita-Aoyama 2-7-5,
near the No. 3 exit on the Ginza subway line). The exhibit is on from
10 am to 8 pm on weekdays and 11 am to 6:30 pm on weekends and
holidays, and there's no admission charge.

Museo Pictorico

"All Aboard! Next Stop: Digital Print Station," from our April issue

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Written and edited by Leo Lewis and Roland Kelts (editors@japaninc.com)


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