Summary
Next week's meeting between Japan's Minister of Financial Affairs and the Chairman of the Japanese Bankers Association provides the first stress-test for the survivability of Japan's newly elected DPJ led coalition government.
Analysis
Elected on promises to boost household incomes, Japan's newly elected coalition Government has wasted no time in alienating the country's pre-eminent banking lobby. One day after receiving their posts in the Hatoyama Cabinet, Transport Minister Hon. Seiji Maehara and Financial Affairs Minister Hon. Shizuka Kamei began butting heads with Japan's top commercial banks. The Transport Minister has thrashed a corporate restructuring proposal ironed out between Japan Air Lines and its major creditors under the supervision of his predecessor while the Financial Affairs Minister has made repeated calls for a 3-year moratorium on the repayment of loans to small and medium sized enterprises. To make matters worse, the Financial Affairs Minister has voiced clear resolve to dismantle former Prime Minister Jun'ichiro Koizumi's postal privatization reforms, an initiative that has enjoyed the vocal support of Japan's banking lobby.
According to Bank of Japan data, loans to small enterprises amounted to 179 trillion yen for the quarter ended June 2009, accounting for nearly 40% of the 420 trillion yen in total loans outstanding from all domestically licensed banks. Hon. Kamei's proposal to freeze repayment on such loans has understandably ruffled feathers in the banking industry and roiled financial markets. The request for next week's meeting came from Japanese Bankers Association Chairman Katsunori Nagayasu, who serves concurrently as President of MUFJ Bank (the World's largest bank by assets). Nagayasu clearly hopes to use the occasion to pressure the Cabinet Minister, and supreme financial regulator, to defuse an inevitable showdown between the Government and the banking lobby over the dismantling of postal privatization reforms and the minister's proposal for a moratorium on repayment of small business loans.
As an added complication, the media is already speculating that the Financial Affairs Minister seeks to pressure former Japanese Bankers Association Chairman Yoshifumi Nishikawa to resign as President of Japan Post Holdings. Nishikawa served concurrently as JBA Chairman and President of Sumitomo Mitsui Bank immediately prior to appointment to his current post. While there might have otherwise been no love lost between Nagayasu and Nishikawa, politics makes strange bedfellows, or so the saying goes.
With two Cabinet Ministers engaged in deep and heated controversy with Japan's most powerful business leaders during their first two weeks in office, next week's meeting between the Financial Affairs Minister and the JBA Chairman may well determine the fate of the Hatoyama Government.
Stay tuned because this dialectic will have a major impact on global financial markets...
Daniel Lintz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
