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Monday, April 28, 2003
Time for Japan to return to reality and give us safer reasons to invest
By NORIKO HAMA
"Wonderful thing, death. So uncontroversial," said Jim Hacker, the hero of BBC TV's highly successful 1980s political sitcom "Yes Prime Minister."
The irreverently honest remark was made on the eve of the state funeral of Hacker's predecessor as U.K. prime minister. Had he been here today, Mr. Hacker might with equal irreverence and honesty have paraphrased himself to say: "Wonderful thing, war. So uncontrollable."
There was and continues to be controversy regarding the legitimacy of the U.S. invasion of Iraq. Yet while the war was actually being fought, it became an uncontrollable fact of global life to which currencies, interest rates and not least, stock markets, had no alternative but to react.
The uncontrollable had taken hold, and markets became brain-dead insofar as such matters as underlying economic conditions, the state of public finances, and the health of the banking sector were concerned.
A wonderful thing indeed for politicians whose handling of these matters was being increasingly called into question. There is also a sneaking suspicion that investors themselves were finding that limbo of uncontrollability rather relaxing. Life becomes so much simpler when there is no room for you to make up your own mind.
Now, however, it is back to reality time. And reality, as ever, is sobering.
Jolted out of brain-deadness, politicians and industrialists in Japan are calling in unison for dramatic measures to halt the stock market's decline. As a means of achieving this, the focus of attention has been placed on households this time round.
The total financial assets of Japan's household sector add up to a staggering amount -- about 1.4 quadrillion yen as we are constantly reminded. Channel more of that money into the stock market and all would be well, say the proponents of greater individual investor involvement in the stock market here. To this end, tax breaks are being proposed to make it easier for individuals to invest in stocks.
There are two problems with this proposal. For one, it seems to assume that the full 1.4 quadrillion yen worth of assets is actually liquid. This is not the case. A large chunk of it has been locked into unproductive government investment programs and banks' nonperforming loans. Withdrawal of those invested funds would in itself create a very serious problem of its own.
Moreover, it is questionable wisdom, to say the least, to haul reluctant individual investors into the market just when it is in the throes of deflationary turmoil. It is putting the cart before the horse. Worse, it amounts to luring the horse into a field full of land mines with carrots of doubtful quality, just because the field looks rather empty.
It is all very well to talk about investors having to be responsible for their own actions and there being limits to investor protection in risky places such as the stock market. That is true in theory. But the practice where Japan's stock market is concerned is that it is a place of interventionist policy maneuvering and mutual support action among cross-shareholders that is rapidly turning self-destructive for the parties involved.
Individual investors at least deserve the courtesy of having the place cleaned up and well-aired before they are invited in. It is neither special nor condescending treatment that individual investors require to get involved in the stock market at any time. A healthy economy and sound corporate profits, coupled with a stock market that operates in an intervention-free and transparent fashion, are all that are required. Sweep the field free of land mines before thinking about offering incentives to get people inside. That would seem to be the correct procedure. Not much controversy in this, surely?
Noriko Hama is an economist and a professor at Doshisha University School of Management.