Subprime Loan Crisis – It’s not just a matter of the U.S. economy
One day at a bank branch office, an old lady rushed up to the counter desk as soon as her turn came. “I want to change my US dollar deposits to Japanese yen. I really need to do it!” The old lady said, pointing to the electric display of foreign currency exchange rates on the wall.
The influence of the 
Services Agency (FSA) survey, which was released last November, showed the financial losses among large Japanese banks were 1.2 trillion yen as of the end of September 2007. However, at the press release on January 17th the head of the FSA said that Japanese banks’ subprime valuation losses have expanded since then. In fact, Sumitomo Mitsui Financial announced on January 29th that the group had a 59 percent decline in second-quarter profit associated with U.S. mortgage investment losses.
INSIGHTS OUT – The influence of the crisis on Japanese attitudes
The influence of the
1. “Saving for a rainy day”
Since the subprime loan crisis, foreign currency trading and stock investments among Japanese are not as hot as before. Japanese appear to be keeping their money in their deposits without engaging in any active investments. Japanese stock prices have experienced a downward trend or have maintained similar price ranges, although there are unexpected daily fluctuations. Recently, total deposit amounts among Japanese banks have seen a slight increase. According to the Japanese Bankers Association, the total deposit amounts among Japanese banks in December 2007 increased 2.1% from the previous year. Quite clearly, interest rates for bank deposits are NOT altered for the increase, as even the interest rate for 10-year deposits in yen is below 1%.
2. Shopping without borrowing
Furthermore, Japanese have seemed to become less reliant on loans for shopping. Statistics from the Japanese Consumer Credit Industry Association shows that the total amount of consumer loan shopping in 2007 saw a 1.4% decrease from the previous year, while credit card shopping saw a 10.3% increase. Japanese consumers, therefore, use credit cards for cashless shopping, not borrowing.
The subprime loan crisis in the
February 01 2008 08:34 am | Economy
Ken on 04 Feb 2008 at 3:28 AM #
Interesting post. However, I think it’s more correct to say that Japanese equities have been on a downward trend since the bursting of the bubble, or better yet, since December 29, 1989, when it hit its all-time high of 38,957.44.
The run up in 2005 was significant, but did not reach the peaks of runs in 1996 or 1999/2000.
While the fallout from subprime is certainly important, I think it’s crucial to look at Ministry of Finance activities over the past few years. The creation and export of trillions of cheap yen fueled much of the global asset inflation we’re now seeing fall apart. The motive? Keep the yen cheap and exporters further in the black. This has come back to haunt Japan since it put so much importance on the export-driven sectors of the economy - though that might be an historical necessity.
The debate will rage over whether the current downturn is due to global turmoil or if blame can be placed on the incompetence of the Abe/Fukuda cabinets in terms of economic and fiscal policy. Both are probably to blame, though calibrating the scales to evaluate just how much may be difficult.
Also, we need to keep in mind that Japan’s decrease in credit loans is in large part due to stricter approval procedures by consumer lending firms, which are no longer able to charge the 29.9% interest rates due to new laws on interest rates for consumer loans.
Noriko on 04 Feb 2008 at 5:32 PM #
Thank you for your comments. The impacts of the subprime on Japanese financial institutions would be updated further in early April, just after Japanese banks close the fiscal term.
The point that this blog made is on Japanese attitudes as consumers - most Japanese people are very reactive to the news. Unfortunately, financial educations for “general people” in Japan are far behind the U.S. Most people, therefore, appear to be easily influenced by news etc. It is interesting to keep watching Japanese attitudes on financial products.
Again, thanks for your perspectives.
Ken on 05 Feb 2008 at 4:25 PM #
Good point on financial literacy - that’s even being discussed in the States now, apparently!
I think you’re right that the public generally views this to be a dangerous time financially due to the subprime crisis. The Nikkei is about the only paper that criticizes government policy. But I wonder if the LDP will start taking heat over the economy, or if the DPJ is in any position to push on this issue. If a lower house election does happen this year, it will be very interesting indeed.
Noriko on 05 Feb 2008 at 6:20 PM #
Unfortunately, financial literacy of most Japanese polilticians is not deemed as high either… from a viewpoint of the general public.
I believe this year is very critical for future growth of the Japanese economy. And this might be an opportunity for Japanese financial institutions to change the rules of the game.