For Japan, the immediate future looks bleak. Japan suffered an asset value loss of close to $10 trillion during the first half of the 1990s and has accumulated a national debt of $3.7 trillion. This astronomical debt gives Japan, like the United States, very little maneuvering room; it is like attaching a 50-pound lead weight to a long-distance swimmer—eventually it will drag them under.
Oil tensions in the world, particularly with the latest defiance by Saddam Hussein, exposes Japan to further uncontrolled deficit spending due to Japan’s almost total dependence upon imported oil, which could double or triple in price during a crisis.
In 1997, Japan saw the highest number of bankruptcies in over a decade as 16,365 businesses closed shop. Unemployment will soon surge to post-World War highs as millions of Japanese workers lose their jobs. The Wall Street Journal of January 20, 1998, reported that “another wave of bankruptcies is likely to sweep the [Japanese] nation in coming months because lenders are growing increasingly reluctant to approve badly needed business loans. Japanese banks are still trying to clean up their own books, sullied by bad real-estate loans earlier in the decade.” The $600 billion bad-loan problem in Japan will only grow worse due to loss of revenue, as its exports to Asia, formerly 40 percent of its total, dry up like seaweed cast upon a rocky shore.
With the recent shakeup at Japan’s Ministry of Finance (MOF), it is clear that things are happening in the Japanese governmental structure, but will it be enough? Two top career MOF bureaucrats resigned on January 29, two others committed suicide and another two were arrested on suspicion they took bribes in return for warning banks of coming inspections. The February 4 Wall Street Journal ran an editorial which makes an important point: “As Japan teeters on the brink of disaster…time is running out for Japan, and unless [Japanese Prime Minister] Hashimoto acts soon he risks being remembered as the man who presided over the decline of the world’s second largest economy.”