<div dir="ltr"><p>J@pan Inc Newsletter<br>
The 'JIN' J@pan Inc Newsletter<br>
A weekly opinion piece on social, economic and political trends<br>
in Japan.<br>
Issue No. 481 Wednesday September 10, 2008, Tokyo<br>
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The world watched nervously as things unraveled on Wall Street<br>
and as the banks in Japan again opened their doors after the long<br>
weekend, the fallout hit... hard.</p>
<p>The Nikkei 225 index fell 5 percent to a three-year low following<br>
Wall Street's historic day of trading. Following Lehman Brothers<br>
filing for bankruptcy, it became apparent that six of the top 10<br>
unsecured creditors were Japanese banks. Aozora held the unenviable<br>
position of No. 1 with $463 million in unsecured loans.<br>
The shares of both Mitsubishi UFJ and Mizuho dropped 11 percent<br>
while the Bank of Japan stood up and threw 2.5 trillion yen<br>
($24 billion) of liquidity at the mess. </p>
<p>Meanwhile Prime Minister Fukuda called an emergency meeting with<br>
key ministers. No doubt the Bank of Japan's two-day policy board<br>
meeting, which ends today, was also taken over by talks centered<br>
around the events.<br>
While only the brightest of optimists felt that we had hit rock<br>
bottom before, the weekend's events were quite extraordinary.<br>
Following on from the Freddie Mac and Fannie Mae bailouts, the<br>
fire sale of Merryll Lynch and now the Lehman Brothers disaster,<br>
investors were seen dumping shares and scrambling for bonds. Did<br>
I mention that Lehman Brothers was the biggest bankruptcy in US<br>
history? Or that Fannie Mae and Freddie Mac were the two biggest<br>
financial institutions that the US government has ever bailed out?</p>
<p>The reaction yesterday was predictable but the scale of it all<br>
was something else—shares on Wall Street saw the biggest one-day<br>
decline since September 11. Now, the effects of the fallout will<br>
be the real show as investors get a grip on where the ripples<br>
will go.</p>
<p>And of course there's AIG. If the biggest provider of commercial<br>
insurance in the US collapses it would be the ugliest chapter<br>
yet in the financial crisis. The US government is talking about<br>
issuing an $85 billion loan to ensure that this doesn't happen<br>
and the markets have reacted favorably. Yesterday, Prime<br>
Minister Yasuo Fukuda downplayed the impact of the Lehman<br>
Brothers bankruptcy asking for calm from Japan's financial<br>
sector. Fukuda once again beat the same drum, saying, as quoted<br>
by Kyodo News: "It's important to revive the Japanese<br>
economy" by compiling a supplementary budget under a<br>
comprehensive package of stimulus measures. </p>
<p>The Japanese economy has so far been relatively insulated<br>
against the impact of the problems of the US. Yesterday Finance<br>
Minister Bunmei Ibuki said that he believed the impact of the<br>
Lehmans collapse in Japan would be limited: "Considering the<br>
conditions of each financial institution's self-owned capital,<br>
we do not have to worry about the Japanese financial system,<br>
though those entities have extended loans to Lehman," he told<br>
Kyodo News.</p>
<p>The full impact of the last few days' events are yet to be felt<br>
and it could be sometime before the follow-on effects are fully<br>
realized. The US government seems to be taking an increasingly<br>
interventionist stance in the defense of its economy. While it<br>
drew a line in the sand with Lehman Brothers, it is already<br>
talking of a bailout for AIG. Meanwhile the leaders of the<br>
finance world are drawing more plans to defend themselves—the10<br>
biggest investment banks have already pooled $70 billion of<br>
liquidity in case another one looks like going under.</p>
<p>It's code red on Wall Street and while the effects won't be as<br>
severe in Tokyo, the fallout will still be felt. Fukuda's<br>
bandying about more talk of stimulus packages but that doesn't<br>
mean much because he'll be gone in a week or so. The government<br>
has already, and will continue to step in if things get worse.<br>
Yesterday it was 2.5 trillion yen in a swift move to combat the<br>
Lehman Brothers shockwave.<br>
The question now is "how stable will Japan's economy remain?"<br>
rather than "How volatile will it become?"</p>
<p>Some optimistic analysts have stated that Japan will be one of the<br>
big winners when the global upturn hits. Over the next few months<br>
we'll see how just how safe a bet Japan really is.</p>
<p>Michael Condon<br>
Editor-in-chief</p>
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STAFF<br>
Written by: Michael Condon, Editor-in-Chief, Japan Inc Magazine<br>
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