After years of contraction, Japan’s economy recently began showing its signs of growth again. In addition, there are signs that the Asian tigers are beginning to stir as well. However, August 5, 2000, one of Japan’s largest retailers, Sogo, filed for bankruptcy. (See the article at http://www.washingtonpost.com/wp-dyn/articles/A12873-2000Jul31.html (no longer accessible)) (Editor’s Note: link no longer accessible). Many experts say this is a good sign in terms of the restructuring of Japan’s capital and its decoupling from the Government.
The key issue for investors and business practitioners involved in the Asia-Pacific region becomes: What are the economic recovery priorities and what kinds of capital structures are emerging? (For further discussion of the issues involved in restructuring Japan’s economy, see Dr. Griffy-Brown’s article in this issue.)
Graziadio Business Review Editor Dr. Charla Griffy-Brown recently interviewed Dr. Kazuyuki Matsumoto, senior economist at the Development Bank of Japan, about these issues and to learn how that institution is participating in the economic recovery of Japan and other Asian nations.
GBR: Japan is still experiencing a loss of confidence and struggling to achieve economic recovery. How is the Development Bank of Japan involved and what do you view as the most important issues in terms of capital and economic reconstruction?
Dr. Matsumoto: The Japanese government feels that venture businesses are very important for economic recovery. Therefore, the Development Bank of Japan has shifted significant amounts of human and monetary resources to these areas as the critical government financial institution. However, from a macro-economic standpoint, these micro-level policies are not enough. We need both a recovery of confidence and an increase in actual demand with stability in both the yen rate and stock prices.
GBR: Can you explain a little about the current challenges concerning capital formulation in Japan during the recession? How does capital formulation differ structurally from that in the US?
Dr. Matsumoto: In the 1990’s, the level of fixed investment has been low. The 1999 figure is about ten percent lower than the 1990-91 levels. This is mainly because of weak demand, which we can see in the current figures related to the growth rates of GDP and private consumption. We may have supply problems too. However, the supply-side problems are not new, and cannot explain the recent changes.
In addition, interest rates have been historically low for several years now. There was a phase of recovery around 1996, but the economy went into another recession because of the financial institution crisis and the fall of stock prices. According to corporate surveys, fixed investment plans for the year 2000 show a slight increase of up to three percent. But the final outcome will largely depend on the stock prices and the yen-dollar exchange rate.
In the US, Information Technology investment has a 34.9 percent share (of investment) on a nominal basis and a growth rate of 21.8% on a real basis for the year 1999. Japanese figures have not yet been published, but according to some government organizations, estimates for growth rates in IT investment have been high since 1994.
GBR: Do you think the role of e-business is evolving differently here in Japan than in the US or Europe? If so how is it evolving?
Dr. Matsumoto: I think our situation is several years behind the US but very similar to Europe (with the exception of the UK).
GBR: After the Asian-economic crisis, Japan’s financial sector was hit hard. What do you see as the remaining factors for rebuilding confidence, dealing with the troubled banks and stimulating economic growth?
Dr. Matsumoto: We may need some type of regulations and monitoring system for the capital movements of large-scale investors. I don’t think the Japanese financial sector was hit hard by the crisis in the medium-term. I think this is true partly because the countries where Japanese banks had a large presence have recovered faster than expected.
GBR: How does the Development Bank of Japan view its involvement in the economic recovery of other Asian countries?
Dr. Matsumoto: The DBJ has been involved in assisting the ‘know-how’ of economic development for those countries in many ways. However, in terms of financial assistance, the Japan Bank for International Cooperation is more directly involved.