Policymakers in Japan would be better off developing sound economic policies instead of criticising the press for talking down the stock market
Japanese policy makers have found a new explanation for their diving stock market: The media.
That new tack emerged the other day courtesy of Finance Minister Masajuro Shiokawa. He complained about the media 'running stories as if big companies were going bankrupt and Japan is going into a big panic. I think this is very annoying and, as a politician, I am really cross with this.''
Uh, yeah, the press is doing exactly that, and for good reason, it's true. Big companies are going to fail, as new financial regulator Heizo Takenaka has said. Investors are going into a 'big panic' over things. And if there's anything 'annoying' about all this, the government should do something.
Shiokawa is once again blaming the messenger and missing the point. He's also reminding us why investors may be right to rush for the exits. For even he, the man charged with instilling confidence in the economy, admits Tokyo hasn't found a way to stabilise things. True or not, should a finance minister tell investors he's at a loss to fix the economy?
Officials here are increasingly playing the Blame Game, and not very convincingly. Chief Cabinet Secretary Yasuo Fukuda this week joined Shiokawa in blaming the Nikkei's losses on declines in overseas shares. The stock decline 'is due to an international trend toward cheaper share prices,'' Fukuda said. He dismissed suggestions the Nikkei 225 Stock Average fell to a 19-year low on the 10 October because of concerns about Japan's economy.
Funny how the US economic boom of the 1990s didn't boost Japan's economy. When the Dow Jones Industrial Average rocketed past 10,000, Japanese stocks walked in place. Now that the Dow is sliding, there's suddenly a symbiotic relationship between both markets? Nice theory, but it lacks consistency.
Bank of Japan Governor Masaru Hayami said 'worries about an acceleration of bad loan disposals'' were indeed weighing on the Nikkei. He said as much while unveiling plans to buy ¥2 trillion ($16bn) of shares from banks to help them limit investment losses amid a slump in the nation's stock markets.
That the central bank would even consider such a move says much about the dire state of Japan's economy. It runs counter to virtually every principal of central banking and of market economics. What in the world will the BOJ do with a portfolio of stocks? Is the BOJ now a central bank and a hedge fund? The BOJ's step reminds us how bad the economy is.
If you want to attract investors and keep them engaged in your country, sound economic policies will do the trick. Solid banking systems, transparency and sober leadership are what pulls in capital. Without them, investors leave. And many know it's time to go when politicians and policy makers begin railing against the messenger. Investors know officials tend to blame reporters for their own failures out of desperation.
Actually, Shiokawa might want to be careful about riling Japan's press corps. He has things pretty good, many doting reporters spare him hard questions. When his US counterpart Paul O'Neill says bizarre things, the press is all over him. Shiokawa gets a pass from the local press no matter what he says or does. If journos here get miffed, they may be less compliant.
At the moment, though, news organisations are too busy trying to figure out which household-name companies are about to go bankrupt. Economic policy makers can say what they want, but some of the walking-dead companies out there will have to fail. Banks are too fragile to forgive debt, and the economy is too weak to help companies boost profits. There's just no way to keep these corporate duds alive.
That's why we in the media are covering the story. Financial regulator Heizo Takenaka put us on the case when he named KPMG Financial KK President Takeshi Kimura to his bad-debt taskforce. Kimura favours shutting down 30 of the biggest corporate deadbeats, which the press dubbed the 'Dirty 30.'
These days, news organisations are scrambling to figure out who's on the list. Investors also are wondering which companies are doomed and, more to point, if they own shares in any of them. In the days following Kimura's appointment, shares of Japan's most indebted companies fell.
Shares of Daiei, for example, tumbled. Daiei is saddled with $17bn of debt, yet banks have shielded Japan's third-largest retailer from ruin. Sellers also drove down shares of condominium builders Misawa Homes and Daikyo, construction company Kumagai Gumi, and consumer credit company Orient.
Shiokawa argues the Nikkei's slide is 'speculative and extremely unnatural.'' In reality, it's neither. Investors are making the entirely rational decision that the Nikkei may not be a safe place to leave money in the years ahead. Companies will have to fail, deflation may accelerate and unemployment will rise. To many, it's not the best environment in which to bet on Japan's stock market.
Blaming the media won't change any of this. What would is giving us a reason to be optimistic on Japan's economy.
Bloomberg newsroom, Tokyo
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