Japan Post, enabler of government debt

The Asia Times has an article arguing that one factor giving Japan some financial leeway is its continued ownership of Japan Post Bank. It’s an interesting read that reviews the history and recent politics of the issue:

[T]he Japanese government has a captive funding source: it owns the world’s largest depository bank. As US vice president Dick Cheney said, “Deficits don’t matter.” They don’t matter, at least, when you own the bank that is your principal creditor. Japan has remained impervious to the speculative attacks that have crippled countries such as Greece and Iceland because it has not fallen into the trap of dependency on foreign financing.

Japan Post Bank is now the largest holder of personal savings in the world, making it the world’s largest credit engine. Most money today originates as bank loans, and deposits are the magic pool from which this credit-money is generated. Japan Post is not only the world’s largest depository bank but its largest publicly owned bank. By 2007, it was also the largest employer in Japan, and the holder of one-fifth of the national debt in the form of government bonds.
Japan Post Bank started diversifying away from low-interest government bonds into more lucrative investments. In December 2010, sources said it was considering opening its first overseas office in London, “aiming to obtain the latest financial information there to help diversify its asset management schemes.”

But that was before the crippling tsunami and the nuclear disaster it triggered. Whether they will finally force Japan Post’s privatization remains to be seen. Other vulnerable countries have sold off their assets only to wind up in debt peonage to outside creditors.

The Japanese government can afford its enormous debt because the interest it pays is extremely low. For the private economy, public debt IS money. A large public debt owed to the Japanese people means Japanese industries have the money to rebuild. But if Japan Post is sold off to private investors, interest rates are liable to rise, plunging the government into the debt trap it has so far largely escaped.

The Japanese people are intensely patriotic, however, and they are not likely to submit quietly to domination by foreigners. They generally like their government because they feel it is serving their interests. Hopefully the Japanese government will have the foresight and the fortitude to hang onto its colossal publicly owned bank and use it to leverage its people’s savings into the credit needed to rebuild its ravaged infrastructure, avoiding a crippling debt burden to foreign interests.

In a sense, having a reliable buyer of government debt is attractive, but this system is not sustainable, nor can it be “leveraged,” as far as I can tell. Japan Post Bank’s deposits have been falling steadily, both because of the aging population and the unattractive interest rates. The whole reason the bank wants an overseas office is because it is interested in chasing yields in riskier investments, a desperate attempt to provide any sort of meaningful return on deposits. Over the short term, keeping the system in place makes sense, but longer term the country needs to wean itself off excessive debt and retool for a declining population, if that’s even possible.

Update: The writer of this piece works for the Public Banking Institute, a think tank organized to promote the concept of government-owned banks in the US.

Power to the people?

After meeting with French President Nicolas Sarkozy today, PM Naoto Kan commented that Japan needs to debate whether Japan’s current electric utility system should exist in its current form. At present, the government grants monopolies to regional utilities, which are private corporations listed on the stock market.

Admittedly, I had not thought much about this issue until this crisis came along, but now I am trying to learn more. Countries take different approaches to who owns the power utilities. For instance, the US has investor-owned utilities that provide around 38% of generating capacity, with the rest a mix of public and cooperative-owned entities.

I don’t have an opinion one way or the other at this point, but I can see how the different ownership structures can skew incentives. If you are trying to provide returns to shareholders, you might be more inclined to promote more electricity usage, as Tepco has done by offering discounts to people who use “all-electric” homes with electricity-powered stoves and baths, etc. On the other hand, both privately owned and public utilities can cultivate the types of entrenched, bureaucratic management teams that lead to the types of massive cover-ups and bungling incompetence we have seen at Tepco.

(Disclosure: I own a small investment in Tepco. Take nothing I say as investment advice)

Temporary blog hiatus

Last Friday I had a clumsy bicycle accident and smashed my right arm into the curb, breaking it just below the shoulder. It is, of course, pretty painful and very inconvenient – especially since I am flying home to New Jersey on Thursday! (Not “fleeing” anything, just that I graduated from my MA at Kyoto University last week and this has been my plan.) I can obviously still type using just my left hand, but it is still pretty tough so I will probably not be posting for a few weeks while my arm heals.

I’m sorry I have to stop now, just as so many new readers are coming in for our disaster related blogging, but the others will continue to post and I should be back in a month ago to discuss both related and unrelated topics.

The “Fly-jin” hype, or: 「フライジン」に該当するページが見つかりませんでした

In English-language news media, everyone is talking about this new word “Fly-jin”, a play on “Gaijin,” i.e. foreigners who have fled Japan in the wake of the earthquake/tsunami/nuclear holocaust [/sarcasm]. Take this article in the Wall Street Journal that everyone is talking about:

The flight of the foreigners—known as gaijin in Japanese—has polarized some offices in Tokyo. Last week, departures from Japan reached a fever pitch after the U.S. Embassy unveiled a voluntary evacuation notice and sent in planes to ferry Americans to safe havens. In the exodus, a new term was coined for foreigners fleeing Japan: flyjin.

The first part of that excerpt is true—foreigners really have fled, and lots of Japanese companies are really pissed about it. I just heard a story of a person fired from a (rather domestic, small-minded) Japanese company for fleeing the country and missing 8 days of work. (I think the biggest problem in this sitaution wast the backward employer and the failure of communication by the fleeing foreign employee.)

But has anyone heard the word “Furai-jin” in actual Japanese conversation? A search of the Japanese version of news.google brought in zero results for “フライジン” and no relevant searches for “フライ人”. A google search for the later brought up lots of pages regarding people who are in love with fly fishing. A targeted google search brought up one thread on a 2ch Japanese chat threat—which is a translation of the Wall Street Journal article! In fact, I find myself in full agreement with a commenter on that 2ch thread:

>”flyjin”(fly + gaijin)

Translation: “’Flyjin’... I bet the guy who wrote this article came up with that.”

So a challenge to Mariko Sanchanta, author of the above WSJ article: can you show us the word “furai-jin” was used before you put it in your article?