JIN-228 -- The Bank of Ishihara

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. 228
Wednesday, May 28, 2003


++ Viewpoint: The Bank of Ishihara

++ Noteworthy News
- Japan's 2003 Summer: Long, Hot -- and Dark?
- Hanshin Tiger Pennant Would Give Kansai a 73 Billion Yen Boost

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++ Viewpoint: The Bank of Ishihara

With his usual gift for subtlety, Tokyo's right-wing Governor Shintaro
Ishihara has chosen the middle of Japan's banking crisis to announce
the creation of the country's first municipal bank. We muscled our way
into the all-Japanese press conference where the ambitious plans were
laid out, and the projected image of the bank certainly did seem
idyllic. Tokyo City, backed with around 200 billion of taxpayers'
money, will open a bank with no bad debts on its books and an avowed
policy of lending to the capital's many small and medium-sized
enterprises (SMEs). These businesses, Ishihara mumbled, were the very
ones that are suffering from the credit contraction being forced on
the mainstream financial houses. Disturbingly, he also boasted that
his loans would not be constrained by the annoying convention of
collateral. To attract the general public, the Bank of Ishihara will
also introduce a range of gimmicks that the megabanks are too unwieldy
to offer yet. The whole presentation was accompanied with pictures of
happy-looking shopkeepers and delighted housewives skipping to the

Ishihara's timing is superb - if you're impressed by political
opportunism. Two weeks ago, Resona, the weakest of Japan's "big five"
megabanks was effectively nationalized after the exposure of its
dangerous lack of capital. This week, Mizuho announced the biggest
annual loss in Japanese corporate history - to the tune of 2.3
trillion. But we reckon there is something very fishy going on here.
No matter how you look at this new municipal bank, it appears deeply
flawed, rushed into being to suit Ishihara's agenda. The man has a
background as a novelist, and we wonder whether this is not something
of a return to form.

The first and most obvious point is that Tokyo's Municipal Government
is many things, but it is not a bank. Grand announcements of 200 new
employees and clever new ways of assessing risk do not alter that
fact. If Tokyoites are duped into thinking that a "clean slate" of
problem loans is attractive on its own, they deserve to get burned.
Also suspect is the aim of providing non-collateralized loans to SMEs.
Ninety-nine percent of companies in Tokyo fall into that category, and
they may very well be the drivers of the city's economy. But in his
zeal, Ishihara omitted to mention that 3,700 of them went bust last
year. The Bank of Ishihara may start life gloriously free of bad
debts, but it may soon find itself burdened with thousands.

The final flaw is that this plan can only succeed if the bank knows
for certain that it is ultimately backed by the taxpayers - a
situation that is really no different from the current status of the
megabanks. When he was pressed on this point, the petulant Ishihara
slammed it as a "yellow question." We wonder whether he was just
irritated that his conceptual edifice has started to crumble so early
in the game.

-- The editors

"Ishihara's Tokyo Revival Bonds Start Strong," from February 2003


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** Japan's 2003 Summer: Long, Hot -- and Dark?

In Brief: Group net profits at Tokyo Electric Power Co. (Tepco)
plummeted 18 percent in the fiscal year ending in March. This was
followed in April by the company's forced closing of all 17 of its
nuclear power plants -- owing to longstanding safety cover-ups. An
ominous chorus forecasting rolling and potentially devastating
blackouts in Tokyo during July and August has now acquired
earsplitting volume. And it has come to this: City landmarks such as
Tokyo Tower will go completely dark for two hours during the summer
solstice next month -- a highly symbolic and unnerving act amid the
futuristic city of blaring neons.

Commentary: As anyone who has visited or lived in Japan's capital can
attest, Tokyo is an immensely wasteful city. Massive lighting rigs
advertise the most paltry offices and restaurants, and even the
humblest of construction sites is bathed in unnecessary floodlights.
The luxury of air-conditioned subway platforms hundreds of feet
underground may prove one luxury too many this summer. What's more:
While other regions of the nation enjoy energy surpluses,
configuration inconsistencies and outdated networks mean that Tokyo
cannot siphon off the excess power. In short: Japan is desperate for
energy. A forthcoming two-part feature in J@pan Inc on the doings in
oil-rich Sakhalin, Russia, will reveal exactly what the nation's
investors and politicians are trying to do about it.

Financial Times

"Tepco's Power Play" from the September 2002 issue

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** Hanshin Tiger Pennant Would Give Kansai a 73 Billion Yen Boost

In Brief: Even in the battered reaches of the Kansai economy, there
are a few gleaming gems. One of them is the Hanshin department store,
which sponsors the Tigers baseball team. On the diamond the team is
famous for failure, a perennial also-ran with only one championship in
its 68-year history. But it takes more than a dismal record to stop
Kansai fans, whose devotion to their team gives Hanshin the biggest
fan-base in the country. Those fans, it would seem, extend their
worship of the Hanshin name into the aisles of the department store
itself. On the rare occasions the team starts winning, a new study
shows, Tigers fans start shopping. This year, in a run of wins that
has Kansai commentators panting with excitement, the Tigers are in
with a decent chance of glory. Kinki academics believe that the effect
of a Pennant win could be a 73 billion boost for the local economy.

Commentary: At first glance, it's stories like this that really warm
the heart. Sports-fan loyalty against the odds is one of those things
that people think of as a triumph of the human spirit. When it takes
on a positive economic angle, the picture seems even rosier. But this
really is a staggering phenomenon: A losing team has a flash of genius
and suddenly the beer-swilling masses descend on the gents clothing
department or the sumptuous food hall. We certainly hope this isn't
one of those occasional "reports" released into the public domain in
the grim hope that it will become a self-fulfilling prophesy.


"Kirk Reuters Autograph for 100 Yen -- Any Bidders?" from December '02

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


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