Solving The Kamei Problem

For a man who was only just appointed to the post of Minister of Financial Services, Kamei Shizuka (note to the skeptical - the link is not to a spoof site. This is the actual home page of his official website) seem to be expending a tremendous amount of energy trying to get himself fired.

In just three short weeks, he has:

- accused the Nippon Keidanren and its members of pushing up Japan's rate of murder-suicides (a Japanese report with the PM's reaction is here).

- undermined the perceived independence of the Bank of Japan but suggesting that its stated intent to find an exit from extraordinary purchases in the commercial paper market represent the BOJ's "talking in its sleep" (Japanese report here).

- fought an open turf war with Minister of Internal Affairs and Telecommunications Haraguchi Kazuhiro over the privatization of the Post Office (in Japanese here)

- blown the minds of financial writers everywhere by suggesting a moratorium on the payments of bank loans taken out by small- and medium-sized corporations -- with the possibility of extending the moratorium to household mortgages .

This last proposal raises the prospect that the Government of Japan, itself an immensely indebted institution, will be forcing Japan's relatively healthy banks to go on a starvation diet.

The proposal has predictably sent financial writers into a tizzy. For a start, the government's chief administrator of the financial system seems to be undoing a decade's worth of work stabilizing the financial system...not to mention turning common notions of finance, economics and property law on their heads.

Some have attributed the seeming inability of anyone, even the Prime Minister, to rein in Kamei's wayward tongue to the government's still being wet behind the ears in terms of its decision making structures. Kamei himself seemingly believes in his own indispensibility, that the prime minister will not ask him for his resignation because the PM cannot bear the loss of People's New Party votes in the House of Councillors. Kamei indeed has taunted the prime minister, telling TV Asahi that if the PM disagrees what his Financial Services minister is saying, he should can him. To dig the knife in even further, Kamei suggested that the PM has nothing to complain about, since Kamei's debt moratorium proposal is merely putting into practice the PM's stated philosophy of an economy based on "fraternity" (yūai) rather than free market principles.

Before running around in circles panicking at the Hatoyama Administration's seeming inability to punish insubordination by a member of the Cabinet, one should keep a few points in mind:

He's probably right - Kamei Shizuka may be offering some rather unorthodox proposals about how to manage a financial system -- but then, Japan has a pretty unorthodox financial system. The banks, having been burned by their own incapacity to write down their bad loans during the 1990s and the searing restructuring finally forced upon them by Gomi Hirofumi and Koizumi Administration, are paranoid about creating new non-performing loans. In the current downturn they have been reluctant to lend and perhaps a little to eager to squeeze collateral from out of bankrupts. A moratorium on repayment would, in this environment, is equivalent to a temporary increase in lending, but one with no need for risk analysis.

Kamei's criticism of the Bank of Japan's announcement on commercial paper is probably spot on. When the world economy is showing only the first hints of restabilization, the inflation rate is negative and when the fiscal stimulus plan is in flux due to the change in ruling parties, the BOJ has no business announcing a pullout from extraordinary support measures. That Finance Minister Fujii Haruhisa is echoing Kamei's criticisms indicates they have a sound basis in theory and practice.

As for Kamei's views on suicide-murders, he may have a point...maybe. The suicide rate this blessed land was puttering along well under 20 per 100,000 population per year until the 1998, when it jumped to more than 25 per thousand, where it has stayed pretty much every year since. 1998 was the year of the Takushoku Bank and Yamaichi Securities failures, when the government of Japan began to subject the banking system and by extension borrowers to the more severe judgments of the markets.

It's possibly all just a show - Kamei has ordered his vice minister and his deputy to draw up enabling legislation for the moratorium. A proposal is due tonight. In the drafts being discussed, however, the term of the moratorium has been trimmed down from three years to one, with only an option for extension to three years. According to reports, implementation would be on a per institution basis, with the go-ahead on a bank's moratorium depending upon the soundness of the bank's capital. It would also be voluntary, with the borrower applying for the freeze on payments -- which would mean the borrower would be putting everyone on notice that he has a structural inability to make his payments. For those with a resonable business plan that only needs a little more time to come to fruition this might be a reasonable course of action. For others, however, applying for relief would be tantamount to declaring oneself a huge credit and counterparty risk.

Not exactly an attractive proposition.

Ozawa is on the case - Kamei's People's New Party provide the ruling coalition with five crucial votes in the House of Councillors. Together with the five votes of the Socialists and the one vote of the Japan New Party, the DPJ along with its conjoined twin the Shinfūryokukai, controls 123 votes in the 240 seat (2 seats are currently vacant, with by-elections pending) chamber.

Without the PNP's 5 votes, the coalition remains three votes shy of a majority in the House.

On Wednesday, however, DPJ Secretary-General Ozawa Ichirō had an all smiles meeting with four independent members of the House of Councillors, whom he invited -- and whom seem eager -- to join the DPJ.

If and when the four independents join the DPJ and assuming that the peculiar beast that is the Shinfūryokukai does not lose its collective mind, then the government will be able to survive a loss of the PNP's support.

At which point the threat value and significance of Kamei's blustery talk will fall further and faster than the U.S. dollar.