Business | Opinion
Japan's credit policy is an open invitation to cut-throat lenders
Consumer-finance outfits deserve zero sympathy
- By William Pesek, Bloomberg
- Published: 00:00 March 15, 2010
- Image Credit: AFP
- Japan Airlines went bankrupt and the hits at Toyota Motor keep on coming.In 2006, the government cracked down on the industry, chipping away at its veneer of legitimacy.
Japan's gangsters may remember 2010 as a banner year.
That's not how the vast majority of Japan's 126 million people will see it. Deflation is accelerating, Japan Airlines went bankrupt and the hits at Toyota Motor keep on coming. And the year is barely two-and-a-half months old.
Amid such gloom, it will soon be good to be a yakuza, a member of Japan's organised-crime syndicates. We learned this week that almost 3,000 consumer-finance companies risk being shut out of the market by the end of June as stricter rules take effect. It will be a boon for extortionate lenders. It also helps explain why Japan's central bank has virtually no chance of ending deflation.
Japan's consumer-finance outfits deserve zero sympathy. Many have long charged interest of about 30 per cent. They may not have full-body tattoos and missing fingers, but they, too, shake down households and small companies.
In 2006, the government cracked down on the industry, chipping away at its veneer of legitimacy. It imposed ceilings on interest. Since then, almost 10,000 consumer-finance companies have closed. Come June, even more will shut down because of credit checks by regulators.
No incentives
The problem is, there has been no corresponding effort to get mainstream banks to lend more. Zero interest rates aren't doing it, and policymakers aren't offering incentives to increase credit growth. The clear winner here will be gangsters waiting to fill the void with off-the-chart lending rates. What many see as stubbornness on the part of Bank of Japan (BOJ) governor Masaaki Shirakawa is really an acknowledgment that monetary policy isn't the problem.
Low rates
Rates in Japan have been at, near or even below zero for a decade and deflationary pressures abound. The problem is a financial system that has never fully recovered from the bursting of the 1980s bubble economy.
Households don't want to borrow, banks don't want to lend. To fill the void and support growth, Japan racked up the biggest public debt in the world. Now that credit-rating companies are warning to downgrade Japan, policymakers are putting the onus on the BOJ to think fast and do something. As this standoff unfolds, those in desperate need of credit may get their loans in dark alleys.
The true number of yakuza-related companies operating under the auspices of legitimacy in Japan is a matter of some debate. Estimates range from several hundred to as many as 1,000. Pundits don't call this the "Four-finger economy" for nothing.
Reining in consumer-finance companies is the right thing to do, yet it's being done clumsily. At the same time, Japan isn't trying hard enough to prod banks to meet the needs of small borrowers. The result over time is likely to be increased bankruptcies, a dynamic that will push small-business owners to the yakuza's door.
Much has been written about the "yakuza recession". Prime Minister Yukio Hatoyama's move to scrap massive public-works projects has hit organised-crime gangs hard. The stock market in 2010 hasn't made money for those gangs focused on finance. All this raised hopes of reducing the yakuza's role in the economy.
It's a wonder, then, that bureaucrats would want to present the underworld with new business. It's a sad state of affairs for an advanced economy. It's also a window onto why optimism that growth is about to roar higher and deflation can be easily defeated is misplaced.
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