The problem with anything Japanese is that it all depends on your point of view. Three Japanese groups fail with more than $10.4 billion worth of debts. Tokai bank has just announced that it will forgive more than $3 billion worth of debts. Shareholders - other banks - in LTCB will get nothing from last year's forced nationalization. And Nomura - once the flagship of Japan's financial services industry - has recently announced losses of $4.6 billion, has been downgraded to junk status and has said goodbye to Max Chapman, the chairman and chief executive of Nomura Securities International.
Some commentators might view this calamitous sequence of events as being in some way negative for Japan. Not Euromoney. We have said before that Japan will avoid restructuring until it is forced by circumstances to abandon its flawed political and financial system. Only when the numbers get enormous, only when ordinary Japanese people feel insecure and even poor, only when there are runs on banks and the pension system is demonstrably bankrupt will Japan change.
Tokai's act of debt forgiveness is the largest by any single institution. The fact that bad debts have been so publicly recognized should make it easier for the rest of the banking community to get their own books in order. That will lead to the creation of a sensible credit market. At the same time, as the loss announcements continue to pour in from the corporate sector, there too restructuring will be forced by an economic reality from which companies have long been protected. Together, these changes will force Japan's public to demand political change as the social contract between them and the old political guard collapses.
