Japan's Banks Are Taking A Hit From The Sub-Prime Crisis
Monday, December 03, 2007SUSIE GHARIB: The U.S. economy is not the only one taking a hit from sub-prime loan losses. The mortgage woes are also hurting Japanese banks and insurance companies. While the problems in Japan aren't on par with the carnage seen in the U.S. and Europe, the situation is hardly cheering. As Lucy Craft reports, sub-prime fallout is just one of many headwinds buffeting the world's second biggest economy.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The good news -- at least if the latest figures released by Japanese financial institutions accurately reflect the extent of their losses -- is that Japan may have escaped the worst of the sub-prime debacle. The total damage so far comes to $11 billion spread across 10 banking groups, says KBS Securities banking expert Kristine Li.
KRISTINE LI, BANKING ANALYST, KBS SECURITIES TOKYO: I still think the direct exposure of the Japanese banks is still quite small, (INAUDIBLE) this $11 billion exposure. It's probably less than 1 percent of their total loans and this is much smaller than their global competitors, like U.S. banks, European banks, even Chinese banks.
CRAFT: The bad news is that sub-prime exposure could be the least of Japanese banks' problems nowadays. Much of the reason Japanese financial sector profits are stagnant right now, foreign experts charge, is self- inflicted damage -- Japanese policy makers shooting themselves in the foot. Take a hastily enacted new law aimed at shielding consumers that has ended up squashing investment. Robert Feldman is an economist with Morgan Stanley.
ROBERT FELDMAN, SR ECONOMIST, MORGAN STANLEY JAPAN: If you want to say, buy a foreign investment fund here, there is a huge amount of red tape that is wrapped around your application. For that, you have to go through the application every time. It's a very long, complicated explanation process. And so the purchases of those instruments have fallen very sharply. Capital outflows have slowed and the yen is stronger.
CRAFT: Another poorly executed new law, intended to make buildings earthquake-safe, has sent construction into a tailspin. KBS Securities' Kristine Li says new housing starts have been slashed almost in half, year on year.
LI: Mortgage growth had been strong until recently, but we had a new construction code and new housing starts collapsed and this certainly hurt mortgage growth. We're looking for some big decline in the second half.
CRAFT: Japan's policy missteps, compounded with the specter of a slowing American market on which Japan so heavily depends for selling its exports, could bring down the curtain at last on Japan's record, six-year- long growth streak, says Jesper Koll, head of Tantallon Research Japan.
JESPER KOLL, PRESIDENT, TANTALLON RESEARCH JAPAN: Unfortunately the risk of a recession in Japan is now very high. We've got domestic demand that is being derailed by some policy tightening by the politicians. On top of that, we now have the hit to exports that is coming from the slowdown in the United States economy. So unfortunately, zero growth in 2008 is a good working assumption for Japan.
CRAFT: Foreign investors have been the biggest players in the Tokyo stock market, but many are writing off Japan nowadays to focus on other parts of Asia. With an array of risks aside from the sub-prime crisis hanging over the Japanese economy, the Tokyo stock market is bracing for a bearish 2008. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
