BY BOB MILLER
The Japanese stock market nosedived 11 percent and the first section lost $266 billion in the first week of trading in 1997. This was capped by a 4.3 percent rout on January 10, the largest one day loss in two years.

Tokyo Stock Exchange officials said that in this one day of trading, the lost value in shares listed on the exchange's first section totaled $108 billion - more than the stock market value of Toyota Motor Corp.

The Tokyo stock market, the second largest in the world, has fallen more than 16 percent in five weeks and 24 percent below the 1996 peak last June.

Financial shares have been taking the worst beating. Shares in banks, security firms and insurance companies have been pummeled. "The sell-off has pushed the shares of some banks, which are struggling to dispose of billions of dollars in sour loans, to precarious levels," the New York Times reported.

In order to meet international standards, banks need to maintain capital equal to 8 percent of outstanding loans. According to the Economist, with the Nikkei stock market index at 17,000, half of the top 20 Japanese banks will be undercapitalized. The Nikkei closed at 17,303 on January 10.

The banks are "caught in a dangerous spiral. As overall shares fall, bank stock portfolios shrink, eroding the profits and capital they use to write off bad loans. Investors then sell bank shares again on fears the workout of their bad loan problems will be delayed, driving down the market again," the Wall Street Journal remarked.

The Financial Times compared the Japanese market to the United States following the stock market collapse on 1929. "It has been caught in a liquidity trap." Continuing, "even with short term interest rates at half a percent and the long bond yield at 2 and 1/2 percent, Japanese companies cannot find attractive investment opportunities in Japan." Capital investment in capacity increasing industrial plant and equipment is not expanding.

The Financial Times also noted, "there is little sign that the collapse in the price of property, which provides the main collateral for bank lending, is at an end." This "comment and analysis" column recalled a recession in 1937- 38 during the Great Depression in the United States, adding, "it took the heavy military spending of the second world war to put the U.S. economy back on its feet."

"There was really no new developments that alone could account for the drop. The massive selling itself became the news, and just lured more panic sellers into the market," said Yasuo Ueki, director of equities operations at Nikko Securities.

Last month Japan's Economic Planning Agency estimated that the gross domestic product would grow only 1.9 percent in the fiscal year ending March 31, 1998- its lowest forecast since World War II. Japan is only one year out of a five year long recession, the deepest in fifty years.

Japan's prime minister, Ryutaro Hashimoto, has also announced that there will be no more government efforts to jump start the economy. In 1996, some $97 billion in public cash outlays and tax breaks helped boost the economy. This year the government's deficit will grow to an estimated 3.7 percent of GDP compared to a 3.4 percent surplus in 1991.

Estimates for growth in corporate earnings for the year ending in March have been cut in half. Meanwhile, the Japanese yen is at a 45-month low against the dollar.

Since the inflated bubble of stock and land prices was pricked in 1989, the bank stock index has lost 61 percent of its value. Bad loans have yet to be cleared. "I think we are much closer to a meltdown in Japanese financial assets now than we have ever been," said Jeff Uscher, the editor of Grant's Asia Observer.

"Any worsening in the condition of Japan's banks is likely to be much more contagious across the world than a slide in the Japanese equity market," the Financial Times warned.

Bob Miller is a member of UAW Local 980 in Edison, New Jersey.  
 
 
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