What is MacroWeb?

Regardless of structural reforms, the Japanese economic slowdown is in part caused by the balance sheet problems associated with bad debts. The government has spent a large amount of money for public works. As a result, the bad debts have accumulated to $1.5 trillion at Japan's bank. Japan has $3 trillion to $4 trillion of troubled and uncollectible bad loans that are between 75 percent and 100 percent of its GDP. After the bubble economy burst in the early 1990s, the bad-debt problem lay heavily on the bank's balance sheets. Today, the banks have become reluctant to lend more money to the business sectors. To make matters worse, the household sector continues to save their income rather than spending.

Nevertheless, the Koizumi government just focuses on the structural reforms to solve the bad-debt problems, although economic recovery is essential to handle bad debts. The reforms include the new methods to measure a bank's loan portfolio. The government may have to take over the troubled banks, and banking nationalization can be one of the options. Because of the Japanese national character, all involved people like politicians, bureaucrats, and bankers just reprimand each other to shift the responsibility. Therefore, the financial zombies are allowed to exist while holding uncollectitable and troubled loans. Japan really needs a leader who will promote an aggressive and demanding plan to overcome the recent recession.

References:

"The ghost of reform past," (2002, November 2). Economists. 365(8297). p67

"Japan's Zombie Cleanup," (2002, November 21). Wall Street Journal. A16.

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