Most people will look at this title and wonder what it is about. To me, a former economic journalist, the Heisei era coincides with the collapse of the government-led economic system that supported Japan's high postwar economic growth. I believe the first sign of this was the response of the Ministry of Finance (now the Ministry of Finance and the Financial Services Agency), which was at the center of government administration, to the "Jusen problem."
Jusen were financial institutions that specialized in housing loans to real estate companies and individuals. Although they provided loans for housing, they were called non-banks because their capital was borrowed from banks and not from deposits like banks. Many of them were subsidiaries of banks. They were established as a "front" for banks after the 1970s, when the public's eyes were turning to excessive real estate loans that led to land speculation.
So what was the "Jusen problem"? Simply put, it is as follows. Amid the land boom of the 1970s and 1980s, Jusen rapidly expanded their real estate lending. However, the excessive land bubble, like the stock bubble, burst, and land prices began to plummet in the early 1990s. Naturally, the funds lent by the Jusen became unrecoverable debts (bad debts), and the Jusen's management came to a standstill. But why was this such a big problem? I would like to explain based on materials I obtained at the time and my interview notes.
An internal government document compiled in 1995 titled "Measures for dealing with the Jusen problem" states, "The early resolution of (the Jusen bad loan problem) is absolutely essential in order to ensure the stability of Japan's financial system and trust in it both domestically and internationally, to contribute to the protection of depositors, and to put Japan's economy on a full-scale recovery track." In other words, the Jusen problem was not simply a management issue for the Jusen banks, but was perceived as a major problem that could destabilize Japan's financial system.
This document clearly states that the total loss from the unrecoverable bad loans of the seven Jusen companies is 6.41 trillion yen, and that the majority of this loss will be borne by the financial institutions that invested in the Jusen companies, but that the remaining 680 billion yen will be made up by the government, that is, by taxpayers' money. After a major debate in the Diet, this tax burden was included in the 1996 budget and was settled.
The Jusen problem was the forerunner of the bad loan problem centered on the major banks, which was the root cause of the economic stagnation of the Heisei era, which has been called the "era of failure" or "era of defeat." The Ministry of Finance conducted a management status investigation of the seven Jusen companies between 1991 and 1992, and accurately recognized the seriousness of the problem. I have an internal Ministry of Finance document entitled "Results of the August 1995 Investigation of Seven Specialized Housing Finance Companies" which states that the loans classified as bad loans of Japan Housing Finance, one of the largest Jusen companies, were approximately 660 billion yen in the 1992 investigation, but had reached over 1.4 trillion yen in the 1995 investigation, accounting for 74% of the total loan amount.
When the bubble first burst, the Ministry of Finance recognized the problem and realised its seriousness, but did not convey accurate information to those of us in the media. Why? After the problem came to light, a person in charge of directing the ministry's operations looked back on the situation as follows:
- Although the Ministry of Finance had great authority, it was able to handle everything within the ministry. Therefore, there was no atmosphere of transparent dialogue with the Diet or the public.
- In this case, agricultural and forestry financial institutions were also involved, making political adjustments difficult.
- They were held back by the success stories of the past, believing that "land prices will eventually recover."
This shows that the Ministry of Finance, which was even described as "controlled by the Ministry of Finance," could no longer keep up with the changing times. The Jusen problem was resolved with the people bearing the cost of its delayed response, but the closed nature of the Ministry of Finance, which reigned over the government-led postwar system, also caused great harm in the process of dealing with the full-scale bad loan problem that hit all city banks. The response was delayed due to fears of criticism that "the people will be forced to pay the bills of banks that have failed in management." In the late 1990s, the "Hashimoto administrative reform" (administrative reform by the Hashimoto Ryutaro cabinet) saw the Ministry of Finance being split into the Ministry of Finance and the Financial Services Agency. As I mentioned last time, it took a full 10 years to deal with the bad loan problem. I believe the price of the Ministry of Finance's failure was too high.
(March 29, 2019)
[Profile of Shigeo Uchida]
Born in 1941. Graduated from the Faculty of Economics at Keio University in 1965 and joined the Nihon Keizai Shimbun. After working in the Securities Department of the Editorial Department, the Japan Center for Economic Research, head of the Securities Department at the Tokyo Head Office and as an editorial writer, he is currently Managing Director the Chiba Gakuen School Corporation and Professor Emeritus Chiba University of Commerce.
<Major publications>
"Seminar: Introduction to the Japanese Economy" (co-author, Nihon Keizai Shimbun)
"Showa Economic History (Part 2)" (co-author, Nihon Keizai Shimbun)
"The New Japanese Economy" (co-author, Nihon Keizai Shimbun)
"History of Japanese Securities 3" and "Now You Can Understand! How the Japanese Economy Works" (sole author, Nihon Keizai Shimbun, Inc.)
"New Introduction to the Japanese Economy" (co-author, Nikkei Publishing Inc.) and others