On the Japanese side, former deputy governor of the Bank of Japan Toshiro Muto discussed how the government dealt with bad debts in the banking sector in the 1990s, and Prof. Keiichi Omura of Waseda University provided a comparison of the Japanese and American cases. The two cases of financial crisis have some superficial similarity (a real estate boom and bust, rapid rise in non-performing loans, failure of some financial institutions, and a broader impact on the economy). However, the presentations made clear that there are also significant differences. As Prof. Omura pointed out, the Japanese financial system was quite simple (dominated by bank finance) while the American system involves a mixture of banking, bonds, and equity, as well as the further complication of securitization and sale of bank loans. Mr. Muto cautioned that, judging by the history of Japanese government policy in the 1990s, the United States, is still only part of the way through the process of cleaning up financial sector and returning the economy to normality. As the U.S. government faces that task, the presentations of both Prof. Walter and Acharya made clear the lack of agreement yet in the United States about the best way to proceed on the longer-run question of reforming the system for the future (including the question of whether large, universal financial institutions provide more or less stability, and the role of the government in dealing with large institutions when they fail).

By Edward J. Lincoln

Wow. What a tumultuous ride the past year has been for Japan both economically and politically, as well as for other parts of East Asia. A year ago this essay argued that Japan should be relatively lightly affected by the financial crisis in the United States, for a number of quite valid reasons. Subsequently, Japan experienced its worst recession of the past 60 years. What happened? The answer lies in a development what was surprising and unexpected: a very sharp contraction of global trade (much larger than the overall contraction in the U.S. or global economic activity) that had an even larger negative impact on Japan’s exports. The slightly good news, though, is that as this essay is being written, the worst is clearly behind, even though the strength of the economic recovery remains in some doubt.

October 1. Sheila Smith, Senior Fellow Council on Foreign Relations. “Japan’s Historic Election.”

October 14. Robert Fallon, adjunct professor Columbia University and former chairman of Korea Exchange Bank. Will discuss how Korean and other East Asian financial institutions have been weathering the global financial crisis.

November 4. Frank Upham, Wilf Family Professor of Property Law, New York University Law School. Will discuss the (un)importance of property rights for developing countries.

Late February or early March. Arthur Alexander, adjunct professor Georgetown University. Will analyze current developments in the Japanese economy

April 29. Mark Tilton, will discuss climate change policy and the business community in East Asia.

By Edward J. Lincoln

August, 2009 - On August 17, the Japanese government released preliminary GDP statistics for the second quarter of 2009. As expected, the numbers show that the economy has stopped shrinking and actually grew at a 3.7 percent annualized rate (comparing the second quarter to the first quarter). That was the good news. The not-so-good news was that the growth was somewhat less than anticipated by the analysts (so the Tokyo Stock Market fell on the day of the announcement). Going forward, the economy will should continue to grow in the second half of 2009, as there is little doubt that the low point of the recession has been passed. However, the large contraction in the first quarter still means that the year as a whole will show a sizable decline of 5-to-6 percent. Even with growth in the second quarter, for example, GDP was still 6.4 percent below its level a year earlier.

 June, 2009 - My field is economics, and my intent in these Lincoln Logs is   to provide commentary mostly on economic developments.  However, this time I want to use the space to explore in slightly irreverent, amusing fashion two anecdotes concerning Japan and the United States (I’ll get back to more serious issues next time). Having just returned to the United States from a week in Tokyo, I have passed through both Narita and Dulles International Airport. At each I had experiences that relate to broader problems of these societies.

Japan, like many countries, has been grappling with response to the H1N1 virus. At first, the government adopted a policy of strict inspection of passengers arriving from overseas, and particularly those from countries known to have the virus. By the time of my journey (arriving in Tokyo on June 1), Japan had several hundred cases of the flu at home. As a result, about a week prior to my trip the government decided that trying to stop the virus at the border was no longer relevant. It was to my surprise, therefore that all passengers on my flight were given a health form (“do you have a fever,” “What seat number did you occupy on your flight,” “what is your address in Japan,” etc.) by the flight attendants soon after takeoff. Upon landing and arriving at the gate, we were told to remain in our seats. On to the plane came 4 oh-so-serious young health officials, clad in buttoned-up, baby-blue, ankle-length hospital lab coats and industrial strength face masks. Except for the lack of goggles, they looked like soldiers prepared for chemical and biological warfare. Since they did not say a word or ask to see any documents, their purpose in slowly marching through the plane was entirely unclear, a task that they nevertheless approached with somber intensity, glancing briefly at each passenger. After 10 minutes of this charade, they bowed and left. Upon deplaning, we then had to stand in line at quarantine booths to turn in the health forms. More diligent officials, also in lab coats and masks, read the responses on each completed form fully before letting the passenger go. Of course, Murphy’s Law applied; the official handling my line could not read English very well and took much longer than any of the others in reading the responses on the forms.

The collection of polls monitored and translated by the Mansfield Foundation provides a fascinating look at economic issues in Japan over the past nine months. Mostly they confirm my suspicion that economic problems are not getting as much attention in Japan as they are in the United States. But the questions and responses also involve a number of odd or puzzling features of public opinion about economic issues.

Let me pick up the thread nine months ago, in August 2008. At that point in time, people should have just begun to become aware of the economic downturn in Japan. In the background was the ongoing financial crisis in the United States. Even though Japanese financial institutions had not invested heavily in American toxic assets, there was a growing recognition that the recession in the United States would have some negative impact on Japan. Preliminary statistics on gross domestic product (GDP) released on August 13 for the second quarter of the year (April-June) indicated a rather substantial dip in total output (at a 2.4 percent annualized rate). Meanwhile...

By Edward J. Lincoln