road construction in Hokkaido in return for 480 million yen. Political scandal
was expose to the public not long after the bubble economy was splash. Lastly,
most of the asset of the politicians are in the real estate market therefore
neither the bank or the officials admit the fall in land prices. So when
this incident was expose to the public, the prices of land fall sharply around
50 %. And mainly because of the period of cover up. So many big and small
investors suddenly woke up from their happy dreams and face the horrible
reality. With the above reasons the government has lost the trust of many
Japanese. Therefore the land speculate activities had also effect the image
of the strong liberal democratic. During the bubble splash period, many
pre-graduates and graduated university students were unable to find jobs
in the labor market due to the diet all companies therefore many students
were frustrate about their future. Therefore the supply of the labor market
is distorted by the bubble burst. Therefore you can see that the land speculation
activities had create many social problems to the Japan society during the
bubble period and after the bubble burst.During the bubble period the economy was strongly boost by the sudden rise
of land value and stock market. On the other hand the after math of the bubble
splash was a pain for the economy. In general we will look at the effects
on the rise and fall of the Japan*s economy.
In 1985 the trade balance in Japan need to have adjustment therefore the
government declare that it needs some force to grow in order to prevent recession
during this adjustment period. (8) “In 1989 the GNP has increased by
481,000,000,000,000 yen and this was mainly due to the speculate market.”
(People put their profit from land to stock market or vice versa) Many companies
were mainly focus on the speculate market. (9) “The Tokyo Stock exchange
soared to almost 40,000 points, the value of stock and land was far above
the real value and value of property was not rise due to its demand but was
due to speculation. Eventually when the bubble splash, the vacancy rate went
rocket high due to lack of demand. Many companies had to go on a strict diet
to survive, and they made deep cuts in expenditures for entertainment,
advertising, communications and much else.” And the above statement is the
general picture of what happen during the bubble economy. During the golden
period of land speculation, many investors know that the land market in Japan
was limited (due to the potential and limited geographic area) so they began
to purchase land over sea in Hawaii. (10) “The Non water front housing price
in Hawaii during 1987 went up by 51 % and the water front housing price went
up more than 100%.” This resale land market in Hawaii was primarily between
the Japanese; in 1987 the land prices was estimate has rise over 60.2% and
many tenants have suddenly realize that the rent has tremendously increase
and cannot afford it, so many people have no place to stay (especially the
elder). There are several reasons that Japanese wants to invest in Hawaii
such as; the waterfront view is similar to Japan so it will be a good place
for vacation and retirement, the distance between Japan is relatively close
( 3 hours trip by plane) and massive left over of equity and advantages in
the exchange rate that has tremendously increase the nominal value of their
equity so it is an encouragement for investment. Therefore the wave of land
speculation did not only distort the land market in Japan but also affected
foreign country.(8) Iwami Toru, “Japan in International Financial System”, MacMillian Press,
New York 1995, pg. 135
(9) Iwami Toru, “Japan in International Financial System”, MacMillian Press,
New York 1995, pg. 135
(10) Kenneth V. Smith, “Inman News”, June 1996 Version, Section B4 email
address: InmanNews@aol.com
Looking back at the Japanese economy (11) “in 1987, 77 out of the top 100
most heavily taxed people were involve in land speculation (either have resale
their lands or have large land properties). This created a very unhealthy
economy because most of the economy is depend on the land market and if any
thing happen to the land market, it will distort the economy greatly. (12)
“In 1989 the top 100 most heavily tax people 95 of them were involve in land
speculation.” Therefore the situation was worst in the later period this
is mainly because of the profitability in the land market. Since many enterprises
only focus on speculate market therefore the real growth of GNP of the country
was only 4 to 6 %. The growth of the economy was mainly on the nominal sector.
The increase in nominal GNP has created massive appreciate of yen, which
had tremendously affect the export businesses and the manufacture industries.
(the nominal price of the good has increase therefore foreigner has less
interest on Japan goods but this mainly effect small and medium enterprise)
While some export business was not doing too well, consequently the workers
are not getting an appropriate rise in income. (13) “In 1986 (Nissan) several
of the high executive had experience an income cut by 5 to 10% and many of
them are very frustrated because most of these people were in their 40*s
and have to pay for mortgages and children*s tuition. In later years Nissan
had announced to cut 500 in order to balance out their lost.” Therefore large
manufacture as Nissan was not doing so well during this period. This was
worst in the case of the small and medium enterprise. Many small and medium
size export companies had contract or even close down during the mid 80*s
and as the wave of income cuts continued, every level and class of the employees
were involve. On the other hand the high exchange rate was really an advantage
for importer (same value buy more) such as energy, petroleum and primary
material. These companies were suddenly becoming so wealthy and the income
of their employees were much higher compare to those working in the export
enterprise. Therefore there was a large gap on the profit and income between
the two distinct groups of company and it was very unhealthy for the white
collar.
(11) – Iwami Toru, “Japan in International Financial System”, MacMillian
Press, New York 1995, pg. 178
(12) Iwami Toru, “Japan in International Financial System”, MacMillian Press,
New York 1995, pg. 178
(13) Cao Man Kit, “The Strategic of Japan Enterprise”, Ming Chang, H.K. 1992,
pg. 135
This period of high exchange rate continues until the bubble burst. The decline
of the bubble economy occurs during the Gulf war period, the economy in Japan
was very quite and at the same time the government had tighten their policy.
(Both tax policy and restriction in loans) As a result, the land speculation
market and land prices fall continuously. The real estate market is totally
frozen. The National Land Agency measures that land price of Tokyo and Osaka
has dropped 30 to 50 percent. (Total land wealth is near 2000 trillion yen
which is really a lot) Many real estate properties were unable to be resale
and at the time many companies were unable to pay such high interest payment
therefore many of them went bankrupt. While the banks rarely make any loan,
many companies cut back in their capital spending. In fact this had dampen
the recovery of economy. Most of these companies that went bankrupt were
either small or medium size enterprise which lack of its separate bank center.
Large enterprises with separate bank center also suffer from non performing
loans by the borrowers (small and medium size enterprise). Others large lending
institution also suffer largely, since the major economic powers at the bubble
period was on the land market therefore any decline in land values would
strongly influence the balance sheets of Japan*s lending institution. As
reported in June 18 1996 The News Times International News that the (14)
“parliament approves a $ 6. 3 billion bailout for bankrupt housing lenders.
The vote clears the way for the establishment of an institution to liquidate
the assets of the housing lender which collapsed under bad loans made to
real estate speculators before Japanese land prices plummeted in the early
1990s. The seven companies are believed to have more than $65 billion in
bad debts.” This $.6.3 billion is only a piece of the big picture because
(15) “the Finance Ministry said that Japan*s financial institutions held
about $324 billion in bad loans as of March 31 1996. Analysts believe the
total could be considerable higher. The government in recent days has been
working to persuade banks and farm cooperative to agree to take on a bigger
share of the bailout burden
to reduce the cost to taxpayer”. According to a current financial post in
Tokyo: (16) “Most of the financial banks declare yesterday that with the
experience of deficit in last year, this year (ended till September) they
had turn deficit into net profit.
(14) – Kenneth V. Smith, “Inman News”, June 1996 Version, Section B4 email
address: InmanNews@aol.com
(15) – Kenneth V. Smith, “Inman News”, June 1996 Version, Section B4 email
address: InmanNews@aol.com
(16) – Herman Li, “Sing Tao News”, November 23 1996, Toronto, Section B 12Banks had systematically write off many of the un collectible accounts. But
their revenue is still not very high because of low interest rate and the
incremental of bad debts. Therefore financial institution will still probably
experience quite a long period of recession.” Therefore residue effects of
the land speculation spill over still continues. Land developers also suffer
largely. Before the land market crash was expose to the public, there were
nearly 1,200 golf course was either approve or under construction. Many
pre-member ships were sold but unfortunately many of the construction are
never finish because of banks were pulling back the loan. At peak, the total
value of golf member ships market in Japan was near 200 billion for 1,700
golf courses. Therefore closing down 1,200 golf course construction was quite
a lost for the economy. Another aftermath of the bubble burst is the high
vacancy rate in the office buildings in Tokyo. During the late 1980*s, the
new constructing rate (for the office buildings) was double compare with
the tradition. After the bubble burst, the value of asset decreases and demand
for space also decreases. Therefore many office buildings are unoccupied.
As you can see, the after math of the bubble burst did not only affect the
business enterprise, government but also the grass root people. (17) “In
last year the economic growth rate was only around 1% or less and the government
had introduce economic revitalization policies such as lowest ever interest
rates and increased public investment but judging by the fact that consumer
demand has cooled off and capital investment by the corporate sector is not
making headway as expected therefore the outlook for economic recovery in
Japan remain hazy”. The bubble bursting has affected everyone in Japan. (18)
“The country has clearly become a victim of the same wrenching process of
debt deflation that had already been visible for several years in so many
other economies. Japan faces the reality of outright deflation in terms of
falling prices. With all that implies for companies inability to maintain
their profit margins. Japan was facing by the autumn of 1993 an unpleasant
combination of excess production capacity, falling demand and a rampantly
high yen. By August 1993 wholesale prices were declining at an annualized
rate of 4.2 percent.” Once again you can see that many Japanese are not very
optimistic about the future economy.
(17) Wood, “The Bubble Economy”, Sidgwick & Jackson, London 1992 pg.
205
(18) Wood, “The Bubble Economy”, Sidgwick & Jackson, London 1992 pg.
206Therefore you can see that the land speculation had create many negative
impacts to the Japan economy not only during the bubble period but also after
the bubble burst.