Japan: The Banking Scandal Could Hamstring Hashimotoby
Tokyo's normally placid political district is seething these days. Riot police are ringing the fortress-like walls of the Ministry of Finance. On Jan. 21, a right-wing group rammed a bus into the central gate of Japan's Diet building. Bullhorns now blare out anti-government slogans to throngs of angry demonstrators.
The government is feeling extreme heat from the public because of a proposed $6.8 billion rescue of seven bankrupt housing loan corporations, or jusen. A monster scandal seems to be brewing that could bog down the Japanese political system for months. Prime Minister Ryutaro Hashimoto, whom the ruling coalition brought in as a dynamic fresh face on Jan. 11, is in danger of being crippled in his first weeks in office.
What has infuriated taxpayers is the prospect that they will have to foot the bill for extraordinary negligence if not outright criminal activity. During the go-go late 1980s, the jusen went way beyond their original home mortgage businesses and lent wildly for office buildings, golf courses, and other risky deals. Some of the money went to yakuza criminal gangs (BW--Jan. 29). The regulators and mainline banks stood by and, mysteriously, did almost nothing to stop this activity. An incredible 89% of the jusen's $100 billion loan portfolio has gone sour.
The opposition leader, Ichiro Ozawa, has already jumped on the jusen affair as a vehicle to trash Hashimoto. The two men are likely to lead their respective camps in a general election later this year. Ozawa grilled Hashimoto in the Diet on Jan. 24, demanding that he drop the bailout.
If that happens, there could be major consequences for the big Tokyo banks. They have already agreed to forgive $60 billion in jusen loans. Now the bill could go up. Fuji Bank Ltd. and Hokkaido Takushoku Bank Ltd. are already planning to take big jusen-related losses in the fiscal year ending in March. And Moody's Investors Service lowered its rating on Sakura Bank Ltd. and Long-Term Credit Bank of Japan Ltd. on Jan. 23, citing debt problems related to the jusen.
CLIPPING WINGS. But there seems no stopping the mushrooming scandal. Hashimoto has agreed to a major Diet inquiry into the jusen problem. Before this is over Liberal Democratic Party stalwarts, ex-MOF bureaucrats, and other prominent members of the establishment are going to face serious embarrassment. Ozawa's aides are determined to expose links between Hashimoto's Liberal Democratic Party and the jusen. Ozawa's New Frontier party has set up a fax hotline for the public to send in tips.
Ozawa will also try to use the scandal to accomplish one of his pet goals: clipping the bureaucrats' wings. Already, Yoshitaka Murata, an ex-MOF career official, admitted on Jan. 9 that he received $190,000 in director's compensation from an Osaka-based real estate company that is deeply indebted to the jusen. Murata, however, has agreed to pay the money back. One question that Ozawa will be asking is what dozens of ex-MOF officials did to gain lucrative jusen jobs.
But whether Ozawa will be able to use the jusen affair as his ticket to power is an open question. The New Frontier chiefs also may have jusen ties that will come out in the probes. Ozawa is a pro but his party, says political lobbyist Dan Harada, "is absolutely no match for the entire brain trust of the LDP." Still, the jusen affair is at the very least going to further liven what was already looking like a stimulating political year in Japan.