With Japan on the brink of its fourth recession in 10 years and the banking sector still on the verg...
With Japan on the brink of its fourth recession in 10 years and the banking sector still on the verge of collapse, most fund managers have lost faith in the Koizumi government.
Koizumi was expected to be the stable prime minister Japan was longing for, but his 'no aid' policy to the banking sector looks to be a disaster waiting to happen.
'The optimism surrounding Japan was dampened by Koizumi slowing his macro-level, top-down restructuring and by the lack of progress on bad debts,' says Philip Whittome, head of the Japan desk at Investec.
'Given that his cabinet is divided, Koizumi has been under pressure from the conservative people in the cabinet and has therefore taken little action on Japanese banks.'
Whittome believes the government is cornered. 'Right now,' he says, 'there is very little Koizumi could do given the fact fiscal and monetary policy have already been used up as economic tools. The ¥30 trillion government bond money has already been allocated for spending and Koizumi is expected to spend on new economy products such as fibreoptics in the next budget.'
If the banking sector keeps on struggling, and there are no indications that the struggle will stop, the banks might be looking at nationalisation as a possible fate.
'The one way of coping with the bad debts has been to introduce more banking regulation,' says Whittome. 'However, banks would be under pressure to keep higher reserves, which would write off shareholder equity. Nationalisation would be a clear solution.'
Nationalisation of banks is not likely to happen until March next year, however. Whittome says: 'If banks are to be nationalised, unless there is a run on, they would be nationalised in March when the end of fiscal year results are made public.'
Stephen Hall, investment manager at Britannic Asset Management, agrees the state of the Japanese banks is a case for concern.
'The situation with the banks' bad loans is worsening,' he says. 'Only this year, Japanese banks have written off ¥6.3 trillion in bad debts, a figure they did not expect.
'At this rate, the government should act fast ' in the next six months. It should set up bodies to write off the bad debts, or Japanese banks might be facing nationalisation.
'Some banks have perfectly good profit records but are facing liquidity problems. These are not companies that should be liquidated. Good Japanese banks will be able to make a dividend this year but will struggle with dividend payments next year if steps are not taken in time.'
There is very little hope of rescue for the Japanese economy, which economists believe shrank by 0.7% during 2001.
Japan has a government debt of 130% of GDP and interest rates are already held at zero. In October 2001, the jobless rate was at 5.4%, a 55-year high.
Opportunities for investors do exist however. The value of stocks has decreased by more than it did in 1998 and the P/E ratio is 25 times lower than it was in October that year, meaning there are many stocks now looking attractive.
Stocks looking attractively valued.
Good banks will still make dividend.
No bank nationalisation until next year.
Little hope of recovery for Japanese market.
Banking sector still in turmoil.
Nationalisation could be only answer.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till