A look
at cash flow analysis and correlation analysis will make the current state of
Japan's modern economy clear. Private sector companies, which had their main
business profits held down due to the high yen economic recession triggered by
the Plaza Accord in 1985, tried to find a way out by utilizing money management
techniques. Then, the sharp rise in asset values due to the use of money
management techniques brought about inheritance tax measures. But the
opportunity for money tightening was missed from the beginning with Black
Monday in 1987. For this reason, the ability to put the brakes on the increase
in asset values was lost. That was a harbinger of the bubble economy.
Due to
the increase in their asset values, companies would amass large unrealized
gains. This created an “overloan” situation for
companies. And that was the beginning of the bubble economy phenomenon.
Many
companies that had excessive loans when the economic bubble burst are not
capable of receiving new financing. For that reason borrowers have disappeared
from the market. And the general government has emerged as a borrower in the
place of the private sector companies.
And
also, even with plans to supply funds to the market with fiscal relaxation
measures, financial institutions would continue to be reluctant to finance
private sector companies that were without collateral. Therefore, no matter how
much they were wooed and beckoned, funds did not flow into the market.
Corporate
financing shifted from external procurement to internal procurement in 2000.
Table: External and internal procurement of funds (Unit:
trillion yen)
|
89 |
90 |
91 |
92 |
93 |
94 |
95 |
96 |
97 |
98 |
99 |
External |
476 |
691 |
630 |
379 |
227 |
113 |
69 |
37 |
29 |
62 |
32 |
Internal |
583 |
704 |
636 |
650 |
479 |
336 |
430 |
540 |
517 |
442 |
338 |
|
2000 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
External |
-98 |
-105 |
-67 |
-235 |
-260 |
-320 |
-265 |
-140 |
33 |
126 |
-66 |
Internal |
551 |
677 |
399 |
413 |
720 |
796 |
1011 |
773 |
574 |
249 |
509 |
Statistics
of Corporations
Statistics
of Corporations
In
addition, at the same time as deregulation progresses, the profitability of
companies declines and the market moves to a state of shrinking and
equilibrium.
The
economy stops growing as the market moves toward equilibrium by a shrinking
process and funds no longer flow into the actual market.
And even
furthermore, the bottom of the market would be broken through by the strong
crush of bad debts. It can be said that, just as land started to recover, the
recovery was squelched by the crisis caused by the collapse of Lehman Brothers.
Even
though the situation might be considered a well-deserved consequence of their
actions, the performance of financial institutions degrades rapidly as
borrowers go away and interest rates decline. But borrowers do not come back
even when interest rates are reduced. This is due to the fact that the value of
borrowers' collateral has declined as their asset values declined, and also
because financial institutions have turned extremely conservative. The deposits
of small and medium size financial institutions have declined rapidly, and as
of 2017, small and medium enterprises account for 50% of financial
institutions.
This
sort of a situation is caused by the decline in asset values, not because the
private sector companies and financial institutions were managed badly.
Declines in asset value cause excessive investment, excessive debt and
excessive employment. Do not be deluded by this point. The state of the economy
must be evaluated from two aspects: the resulting economic conditions and the
factors that brought about those conditions. Considering only the resulting
conditions causes us to misjudge the essential points, which makes it
impossible to take appropriate measures. Taking your own human condition as an
example: when your physical strength is weakened because of an illness, if you
must do more things that further deplete your physical strength, your illness
will only worsen without getting better.
Private
sector companies convert their deficits to surpluses.
Table:
Liabilities and financial surplus or deficit flow (Unit: 10 billion yen)
|
1989 |
1990 |
1991 |
1992 |
1993 |
1994 |
1995 |
Private
sector non-financial corporations |
-236 |
-369 |
-413 |
-297 |
-146 |
50 |
-14 |
Household
economy |
363 |
459 |
452 |
514 |
476 |
388 |
327 |
General
government |
61 |
112 |
169 |
-16 |
-85 |
-178 |
-173 |
Foreign
countries |
-87 |
-54 |
-111 |
-149 |
-140 |
-122 |
-92 |
Financial
institutions |
-16 |
-132 |
-114 |
36 |
-36 |
-33 |
39 |
The Bank
of Japan
Funds
stagnate in the financial markets and cause inflation. In order to solve the
problem of inflation, the Bank of Japan is forced to purchase a large amount of
government bonds. In order to get funds to circulate in the market, the Bank of
Japan lowered interest rates, going to a state of zero interest rates and
negative interest rates. Even so, funds did not flow, and quantitative easing
measures were attempted.
Nevertheless,
funds were not supplied to the market. And that is the present situation.
The
measures to be taken are also clear.
Increase
the liquidity of land and increase the values of assets. Restrict certain
regulations to suppress competition and improve the profitability of companies.
Adjust interest rates and taxes to control the economy. Restrict public
investment with the aim of improving fiscal health.