Beyond 2000

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[Preface to the old timers: My apologies for not being able to answer your email. I took down my 'Japan Perspective' site because I knew I would have neither the time nor the means to update it and I decided that old information is bad information. I've got a health problem that some of you are aware of and I'll be in the hospital again starting the middle of August for a few months. I get to lurk around the house for a few weeks, so maybe I'll lurk here during some of that time. Today is one of those 'good days' and I wanted to bore you with a few thoughts...]

What's the y2k news from Japan?

Clearly, the public sector is on the same plane as all advanced countries. The news hasn't caught up to the western media yet. Many power companies, water/waste treatment facilities and telecommunications companies are operating today with internal date settings beyond 2000. The air traffic control system is in better shape than the U.S. FAA.

-- The great unknown is still embedded systems and the government is asking people to store more food and water. Keep in mind that most of us here in Japan already have an 'earthquake stash' of supplies. Embedded systems realities versus testing and theoretical modeling are genuine engineering concerns across the entire infrastructure sector.

-- The reported plan to boost national fuel reserves from the current 2 week supply to a 6 month supply before the end of the year doesn't seem to be happening - it's a logistical nightmare and the national government bureaucracy is probably still fighting over which agency has the final authority to develop the motto, slogan and cute little mascot to represent the plan...

-- The local and national government systems remediation status is on par with U.S. remediation. The national government issues 'were almost ready' statements and pushes the blame for any failures down the food chain to the local level.

The saving grace for Japan may be its lack of IT savvy. Don't be fooled by any 'high-tech image' you may have of Japan. Japanese companies and government agencies are masters of office inefficiency and paperwork. You wouldn't believe me if I told you...

-- Some of the train companies have just started. Big trouble in some areas.

Financial Sector

The domestic banking networks are compliant. ATMs are the lifeblood of Japan. Keep in mind that most Japanese have never seen a check and credit card usage in Japan is extremely low compared to the west. Cash is king. The government has boosted cash reserve about 400% more than the U.S. A good move by the Finance Ministry and Mr. Miyazawa. I've been impressed by his actions lately, but he's a rare breed surrounded by clueless, old flatulences.

Liquidity, liquidity, liquidity. (A few more comments about this further down the page...)

Now, to the question of the status of individual banks and financial institutions -- My take is that a great reckoning is coming. I believe Japan will lose a major bank or two and three or four second-tier banks by the middle of 2000. Their own noncompliance (domestic and international transaction problems) coupled with the problems of some of their large industrial customers could be too much to overcome for some marginal performers.

The FSA has shown remarkable (for Japan) resolve lately to separate the wheat from the chaff of financial institutions. Kudos to the FSA. The government will allow institutions to fail - a ray of hope for recovery planning. I started using "Recovery Planning" in lieu of "Contigency Planning" in January of this year to drive home the point that failures will occur -- plan on it.

And just in case you think the bad debt of Japanese banks is a Japanese-only problem -- the bad debt disposed of this year was bought primarily by U.S. investment firms. Your financial future is tied to the financial future of Japan.

Private Sector

Here we are near the end of July. My comments earlier in the year that fiscal-year rollovers would cause few problems turned out to be on the mark. We all have different professional experience and a circle of people that we call upon to draw our conclusions. My professional experience and circle of people tells me supply-chain management problems will be more pronounced starting in mid-October.

Once again, some major Japanese companies are going to have parts ordering and management problems starting October and November. Delays in starting and underestimating the complexity of factory automation remediation will come home to roost near the rollover.

U.S. companies have more inventory turns that Japanese companies (they really aren't as efficient as they would like you to think they are...) and the problems could affect U.S. and European companies faster than Japanese companies. I'm not particularly concerned about enterprise systems or office automation systems in large companies. Only a handful of Japanese companies use them efficiently anyway. It's production systems that I'm worried about. Why?

The U.S. is the global financial engine and you cannot isolate yourself from the Asian grid of parts and products. It can't be done. There is not an electronic product or part in your house, driveway, or office that doesn't come start or pass through an Asian country.

It's the stalling of the world's economic engine that concerns me the most.

Some final thoughts and observations:

-- Interbank call rates are 400% higher for 6 month instruments due after the century rollover. A significant event as yet unreported.

-- Three month instruments bid in September should be carefully monitored.

-- Japanese banks are privately increasing cash holdings for the end of the year. I haven't read or heard of U.S. banks doing the same yet. I find that disturbing, if it's the case. Waiting for the Fed to bail them out later is irresponsible. The Japanese system will have 4 times the liquidity of the U.S. market per person. I think it's time for the U.S. Fed to reconsider and increase the U.S. liquidity.

-- Gary North's claim that a million Japanese housewives lined up at banks will be a catalyst for U.S. bank runs is over-the-top and foolish. Look to the U.S. Stock Exchange as the precurser to y2k events.

Y2k = Wall Street. The catalyst of catalysts.

-- I'm particularly disturbed by what appear to be further regulatory limits available to the U.S. banking industry to limit funds availablity. Alan Greenspan's statement about 99% not being good enough had nothing to do with technology. It had everything to do with confidence in the system and your money.

The U.S. banking system cash-availablity rules are already a government-condoned confidence game. It's your money and the use and abuse of checks and clearance waiting periods is simply fraud. It does not take a week for an out-of-state check to "clear." Electronic transfer of any amount of funds should be available for conversion to cash immediately. Period.

Japan is not perfect, but I can still withdraw $10,000 worth of yen from any ATM machine at one time - and do it as many times as I want until I run out of money. And no fear of being arrested for "structuring." It's my money.

I won't give any free (read: worthless) financial advice, except decide something. Luck is when preparation meets opportunity. And don't feed the trolls.



-- PNG (Peter Gauthier) (png@gol.com), July 25, 1999

Answers

PNG, welcome back; have missed you! Good luck with your hospitalization: better now than later, eh? ;^) Hope Forum perusing eases recovery boredom and takes you out of the body for spells. Should get curiouser & curiouser as Time Begins To Tell.

-- Ashton & Leska in Cascadia (allaha@earthlink.net), July 25, 1999.

Thank you for the Japan update Peter (PNG),

Always good to hear your valuable perspectives. Do hope your health improves dramatically as well.

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), July 25, 1999.


Thanks Peter. Good luck and get well soon!

-- a (a@a.a), July 25, 1999.

Hi PNG:

Good to see you posting again -- we don't get to hear about the Japanese situation in such detail from our own media.

Questions for you, if you feel up to it: How is the situation between Taiwan and China perceived there? Do people fear a shootin'war? Since the US long ago pledged to assist/protect Taiwan against "Mainland agression" -- is there a sense that the US would honor that committment (especially after our "Chinagate" mess)?

I've been hearing that Mainland also is trying to occupy some of the islands off of Taiwan, and maybe off the Philippines, too....

Is there more going on than meets the eye? Or is our media hyping some ordinary chess moves in the Pacific?

Anyway -- thanks again for posting. Good to have you with us, again.

Anita Evangelista

-- Anita Evangelista (ale@townsqr.com), July 25, 1999.


Peter, Thanks so much. That really clarifies things for Japan. One wonders. I just sent that to my friend who has lived in Yokohama for 20 years--he's not in touch with Y2K although periodically I go off on him about it. I hope this will help him prep.

God bless. Be well.

-- Mara Wayne (MaraWayne@aol.com), July 25, 1999.



PNG, thanks for your valuable input. Sure hope you get better soon.

PNG, the only 'problem' I have with your post is that, correct me if I'm wrong, you sound a bit 'over-optimistic', for lack of a better word. Because on the one hand you describe Japan's y2k situation as objectively as anyone can, but on the other hand you do not sound (to me at least) too worried about (a) the big train problems you are expecting (Japan is dead without a perfect train system) or (b) the fuel reserves they would be lacking, just to mention two items of your post. Of course, your description and valid examples of how much cash the Japanese economy needs ("cash is king" you rightly say) should make anyone nervous about Y2K compliance claims of the Jap banking industry, which apparently you are not even challenging. Is it that they underwent thorough, widespread, transparent remediation and testing of their financial system? Not that long ago Japanese financial authorities were claiming silly excuses as the "Emperor's calendar" and other similar non-sense. Could you input more on that please? 'Cause ATMs and cash distribution systems better work like a fine-tuned violin come Jan.2000 in Japan or else.

Take care

-- George (jvilches@sminter.com.ar), July 25, 1999.


Thank you, Peter, really good to see you again. I hope we'll hear more from you while you're lurking around the house.

Question: what did the hospital say when you asked about having your laptop in your room? :)

-- Old Git (anon@spamproblems.com), July 25, 1999.


PNG:

I had a laptop when I went in to the hospital in mid Nov 1998 for a kidney transplant (the kidney came from my brother). I was so intent on being able to get logged in again, that I forced myself to regain flexibility and movement. After a few days, my ability to pick things off the floor, etc. amazed the nurses. Besides staying in touch, bringing a laptop aids healing! Best of luck to you.

-- David Holladay (davidh@brailleplanet.org), July 25, 1999.


Welcom back PNG, missed your perspective on Japan.

To what extent would you estimate that Japanese banks might call in their foreign loans? This has been quoted as one of the possible Y2K triggers as it affects China's outstanding debt and the overextended market. It could lead to China devaluing the Chinese currency which could make things worse for Japan, the Asian tigers and the world including the USA. Could the Japanes effort to improve liquidity be the start of the snowball rolling down the slope?

Best wishes for a speedy recovery.

-- Bill P (porterwn@one.net), July 25, 1999.


Thank you, Peter.

Sending you good healing wishes from the Healing Island (Hawaii). I love that statement: "Luck is when preparation meets opportunity." It says a lot.

As do you, always. (BTW, I wonder if I am the only one who reads "PNG" and hears it as "ping" in my head?)

-- Sara Nealy (keithn@aloha.net), July 25, 1999.



Hey PNG. I have missed your website. I was not aware you were ill. Thanks for taking the time to post and as usual your view of Japan is appreciated.

Please recover quickly.

-- Mike Lang (webflier@erols.com), July 25, 1999.


PNG, Hope all goes well. Always enjoy reading your interesting perspective.

-- Puddintame (achillesg@hotmail.com), July 25, 1999.

PNG --- Thanks for the update. Wish you a very speedy recovery. Better to spend the time in the hospital now than five months from now. Hope you keep in touch with us here on the forum.

-- thinkIcan (thinkIcan@make.it), July 25, 1999.

"Luck is when preparation meets oppurnity" matches *Luck is when preparation meets adversity*. Good to have you back.

-- Carlos (riffraff1@cybertime.net), July 25, 1999.

Anita:

Yes, the Japanese media are almost consumed with fear about North Korea and China. The irrational and unpredictable behavior of N. Korea is paramount. The recent intrusion (and there are 100's every year) by 2 N. Korean ships and the failure of Japan's Maritime Self-Defense Force (JMSDF) to stop them has had a profound influence on the Japanese political scene.

My impression of the China/Taiwan row is that the Japanese fear U.S. mistakes and saber rattling more than the Chinese. The problem is the renewed and expanded security alliance between the U.S. and Japan. The Chinese are seriously perturbed at Japan for being U.S. "lapdogs."

Japan, as the only Asian country left that 'hosts' U.S. forces, and particularly the only forward-deployed carrier group in the Pacific, are sitting ducks for the Chinese. The security treaty is a one-way street. Japan has no voice in any actions taken by the U.S., yet will bear the consequences of any missteps (not that the U.S. ever makes targeting errors or mistakes in foreign policy judgement...).

The Chinese have indeed constructed facilities in the Spratleys. The Chinese claim they are temporary ports for fisherman, but they are not. They are observation and communication centers constructed in proximity to major shipping passages. They are simply part of the long-term Chinese goal of "construct, confront and claim."

As far as honoring commitments... I think the Japanese definitely believe that the U.S. will do what is politically expedient for the U.S.

George:

Good points. Perhaps "resigned to the likelihood of problems" is more appropriate than "over optimistic."

I'm definitely worried about some of the train companies. Last year I was scared to death because of the lack of action. The major urban train companies have been working (albeit after a late start) and I can only be optimistic since I have no control over the results of their action. My concern is that the more rural train companies feed many of the power generation stations their fuel.

Banking-- The domestic ATM banking networks are compliant. The Tokyo Stock Exchange no longer has people on the floor and the networks are compliant. The testing has been open and institutions have been testing through the networks during a pre-determined schedule established last year. It's important to understand that network development in Japan is fairly recent. The older banking networks

The question of individual banks is another issue. The best I can say is that some will be ready and others will not. Not a great answer, but I think realistic.

As far as challenging their claims -- the answer lies in their testing within the networks. I don't have blind faith in compliancy statements, but the BOJ has developed extensive contigency plans to shift transactions from any institution having problems to institutions that can process their transactions. The banking industry is working together on this and traditional competition is 'out-the-window' during the rollover period. The traditional Japanese mindset of cooperation takes over when an entity such as y2k is considered an outside threat to Japanese people.

I wouldn't be so hasty to dismiss the Heisei calendar issue. Think about it for a minute and consider that all domestic transactions, government reporting and all customer billing & statements do use the Heisei calendar. Most mainframe applications (and data) in the banking and utility industry use the Heisei calendar. If you lived on another planet, which is like living in Japan, and you were developing a system based on your planet's calendar, why would you write Earth's calendar system into your applications? You wouldn't.

Most banks and government systems never input western calendar data beacause their routines are based on date fields that include the era (Showa vs. Heisei) and the appropriate year for the era.

This is a point where I differ from Ed Yourdon's contention that NTT's mainframes are highly susceptable to failure because of the sheer number of applications and mainframes. The hardware and applications were designed to use the calendar system for the Japanese planet.

Don't get locked into the thinking that all mainframes were built in the U.S. and use western rationale in packaged or custom applications. It just isn't so. The banks and companies that are experiencing the most difficulty and expense are those that switched to U.S.-developed packaged applications.

I'd be interested to hear from some of the pro's here (but not Y2kPro) on this...

Old Git:

No laptops or cell phones allowed!!!

Bill P:

I think speculation on Chinese currency devaulation is premature. The global market and Asian market is causing China's problems. China is still exporting its share of goods, but the demand isn't there. They have taken a major GDP hit, but other social issues and timing are more important to them. My guess is that China won't seriously consider devaluation until the 3rd qtr of next year.

Once again, I consider possible liquidity problems in America and the Dow to be start of any snowball. The NYSE affects the world more than the world affects the NYSE.

-- PNG (Peter Gauthier) (png@gol.com), July 25, 1999.



PNG,

Thanks for this peek into what's happening in Japan. This is a keeper.

Hope you feel better...

-- pshannon (pshannon@inch.com), July 26, 1999.


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