Tokyo: Hidden Problems Get Worse

Japan's stock market is down 60% from its peak in December, 1989, and by some estimates, commercial real estate values there have dropped by $400 billion or more. This deep-sixing of Japanese asset values shows few signs of reaching bottom soon. And a continued plunge in Japanese markets could have serious economic repercussions for an already fragile global economy.

So the latest actions of the Japanese government to stem the decline are being closely watched from New York to Frankfurt--and they are disappointing. True, Finance Minister Tsutomu Hata conceded for the first time on Aug. 18 that the Japanese financial system faces serious problems, and he proposed loosening certain regulations on its hard-pressed banks. But his reform package is much too timid in scope--and could even make the situation worse. The Finance Ministry wants to let banks delay disclosing the losses on their huge stock portfolios until March, 1993, in the hope that the stock market will recover between now and then.

But investors are more likely to be frightened than reassured by officially sanctioned concealment of the facts--and justifiably so. Without accurate information, investors can only assume that Japanese banks have absorbed even more staggering losses than anyone thought. Anticipating the worst, investors may keep pulling out of the market, driving it ever lower in a downward spiral that could drag down markets around the world. The past 30 years have taught us that markets work best when information is available to everyone, and panic is most likely when uncertainty is high.

So rather than trying to sweep problems under the rug by tinkering with regulations and disclosure dates, the Japanese government would be well-advised to take bold and credible action. Get the information out that the markets need. Aggressively lower interest rates to arrest the downward momentum of the asset deflation. And prime the fiscal pump to ensure that the Japanese economy does not slip into a classic recession. Further caution carries excessive risk, not just for Japan but for the rest of the world.

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