JIN-257 -- Talkin' 2004 -- Our Prognostications

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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, Technology and Cultural News

Issue No. 257
Thursday, January 15, 2004

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@@ VIEWPOINT: Talkin' 2004 -- Our Prognostications

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@@ VIEWPOINT: Talkin' 2004 -- Our Prognostications

We were in the UK over the festive season and the winter chills were
warmed by a lovely little story breaking in the business world. BCCI, a
name now sadly dimming in the collective memory, was a giant financial
scandal 12 years ago and one of the world痴 biggest ever banking frauds.
At the time, it was one of those stories that ran like a gore-splattered
car wreck: no matter how appalling the revelations, you just couldn稚
tear yourself away.

BCCI collapsed, the liquidators moved in and all sorts of official reports
were drawn up to make sure it didn稚 happen in Britain again. Over and done
with, you might think, except for the fact that the liquidators of the
ill-fated bank have now decided to sue the Bank of England for its role
in the whole mess. This is a giant legal step, even in an increasingly
litigious Britain, and no doubt the affair will have all our learned
friends rubbing their hands at the important precedent it sets. Suing
the government is a serious business, however you look at it.

But look a little closer: Something very funny is going on. Specifically,
the Bank of England is under fire for its failure to take over supervision
of the foundering BCCI once it was abundantly clear that something was
dangerously amiss with its finances. It is being blamed, in short, for
being too hands-off in dealing with a financial institution.

What has all this to do with Japan? Well, nothing -- unless you find it
disturbing how great the discrepancy is between how people around the
world see the roles of central banks.

When Resona went bust last year, the Bank of Japan and the FSA moved
in with a huge bailout -- an effective nationalization. They did the
same a few months later when Ashikaga hit the skids in an equally
spectacular way. On both occasions the criticism of the government
for stepping in was deafening. The Japanese government was being
blamed, in short, for being too hands-on in dealing with a financial

The public/private debate will rage as long as there are two distinct
sectors with those titles. A resolution will never come, but the
coincidence of these two conflicting criticisms of the role of central
banks does suggest that a consistent line is called for. Japan痴
troubles make it screamingly obvious that the stability of an economy
relies heavily on the banking sector, and that there are times when
private sector market forces do not produce the solutions that the
wider fiscal health of a country needs.

We have a strong sense that the issue will rear its head again force-
fully this year.

>> So, then: Here are the JIN hostages to fortune for 2004. Hold us to
them next December 31.

*Japanese banks that will fail in 2004: 3

*Amount of MoF intervention in currency markets in 2004: $400 billion

*Level of Nikkei 225 on last trading day of 2004: 12,300

*Number of cabinet ministers who resign or are fired in 2004: 3

*Number of corporate bankruptcies in 2004: 17,500

-- The Editors

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


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