Japanese economy: A revitalizing influence

FOR THE PAST 10 years investors have looked on with incredulity at the inaction of those charged with directing the Japanese economy, particularly the banking sector. For while it is plain that it needs comprehensive restructuring, nothing seems to get done. And as long as fighting between political factions of the ruling Liberal Democratic Party persists, and decisions and plans in the banking system are driven by self-interest, nothing will change.

Those in the upper echelons of power in Japan do understand the need to restructure and repair severely damaged banks reeling under a mountain of bad debt estimated at ¥44 trillion ($371 billion). And those in the banks themselves understand this. But they still fail to act, unable to reach agreement between themselves and with the government on just about every topic. For as long as there is a state of paralysis, bad borrowers, primarily in the retail and property sectors, remain in a state of limbo, like the living dead. Too sick to restructure themselves, they survive on a mix of government injections and yet more loans from banks that feel they have no choice but to continue throwing good money after bad.