Reformers retreat from action

New evidence that the Japanese government is incapable of solving the banks’ bad loan problems hurt the Tokyo stockmarket during October.

Jonas Lindmark 1 November, 2002 | 2:53PM
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After three quarters of good relative performance for Japan funds last month was depressing. The MSCI Japan index fell by 7% in October compared with a rise of about the same amount for the MSCI World index.

Investor sentiment

It seemed to be good news for the markets when Junichiro Koizumi, the prime minister, appointed Heizo Takenaka, the economics minister, as the head of the Financial Services Agency (FSA) on September 30th. Mr Takenaka promised to present broad measures to restructure bad loans and force the banks to write off their bad debt.

But Mr Takenaka has many critics of his p

lans. He faces resistance from all sides including his political party - the ruling Liberal Democratic Party (LDP), opposition parties and people inside the FSA and the Ministry of Finance. Many are fearful of the repercussions of strong reform. Numerous firms are likely to fail if robust banking reform is enacted, creating unemployment and increasing pressure on the government.

So just three weeks after taking on the task of overseeing the banks Mr Takenaka looks set to fail. LDP opponents derailed his original proposals on October 22nd. The revised plans, which were announced this week, appear to be much weaker than originally announced, a victim of political compromises.

These actions reinforced a trend that continues to worry investors in the country. Yet again the government announced strong reforms only to back away from them in the face of the ensuing outcry.


Many analysts argue that a government willing to take an unpopular stand on economic issues is needed to revive the Japanese stockmarket. It is uncertain if the current one is up to the task.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Jonas Lindmark

Jonas Lindmark  has been editor and head of fund analysis at Morningstar Sweden since August 2000. Before that he was personal finance editor and designed fund ratings during 9 years at the weekly business magazine Affärsvärlden.

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