- TOKYO (Sapa-AFP) - Japan's
financial system is headed toward collapse and will require a government
bailout of one trillion dollars, a US think tank said.
- "Japan appears poised to follow the passive route
of outright default," resident scholar John H. Makin wrote in the
monthly Economic Outlook report put out by the American Enterprise
for Public Policy Research on Wednesday.
- "The negative net worth of the Japanese banking
system is somewhere above the yen-equivalent of one trillion dollars,"
Makin wrote. "When the banking system collapses... the Bank of Japan
will need to inject at least one trillion into the banks to protect
- He said such a procedure would need to be financed by
the Japanese government, resulting in total public debt jumping by 15
and causing a surge in liquidity that would cause Japan's currency and
bonds to collapse.
- 'It amounts to beating harder a dead horse' "Japan's
deflation and debt crisis now constitute systemic risk to the global
- The report harshly criticises Japan for failing to stop
rampant deflation, which increases the burden of paying off debts.
- "Efforts by the Bank of Japan to boost economic
activity and to reflate by increasing reserves in the banking system and
cutting short-term interest rates virtually to zero amount to beating
a dead horse," Makin wrote.
- "The dead horse is the Japanese banking system,
which by virtue of its insolvency is unable to act as a financial
borrowing short from the central bank and lending to Japan's private
- Makin also criticised moves to postpone past next March
the government's plan to cap its guarantee on bank deposits to 10 million
yen (about R900 000), saying; "that step will only delay the outright
collapse of the banking system."