Danger signals as Japan comes clean Nov 29 Peter Hartcher

www.afr.com.au/asia/2000/...KF2GC.html

"Postponement is Japan's national sport," says the leading Japanese commentator and management strategist, Kenichi Ohmae, but that game is about to come to a rude end.

"There has been no progress whatsoever in reforming Japan" despite a decade of stagnation, says the globalisation guru, author of The Borderless World and founder of McKinsey's Japan.

"Everything has been postponed."

It is true that the ruling Liberal Democratic Party has tried to forestall any restructuring that might hurt its constituents.

It has done this by going into unprecedented amounts of debt - government debt was half the size of the national economy 10 years ago. Today, it is 125 per cent and rising - more than any other major economy.

The Government has guaranteed the debts of one company in 10 to keep them from bankruptcy. And so on.

And what will end this sport of procrastination? Simple, says Ohmae. Two years ago, Japan legislated to introduce international accounting standards. They take effect from April 1 next year.

So what? It may seem a trifling and innocuous matter but Ohmae says it will revolutionise Japan Inc.

"This will change everything. If the stockmarket stays where it is - with the Nikkei index around 14,000 - it will have a huge effect."

It will create three big effects, he says.

First, most banks will be bankrupt. This is because Japan's banks will have to book the value of their huge share portfolios at current market value for the first time.

And since the average price they paid for their shares is equivalent to around 15,000 points on the Nikkei average, anything less than that will oblige them to realise losses.

"Everyone will be underwater - it will be a huge problem," says Ohmae.

Second, the new standards will require firms to consolidate their accounts, including for the first time the companies in which they do not have a controlling stake.

"The trading companies, for example, have created over a thousand related companies to push all their bad debts into - welcome back to reality!"

And, third, companies will be obliged for the first time to book employee pension and severance liabilities at net present value.

"This is absolutely new - and if you have lifetime employment, you have lifetime liability. Rich companies like Toyota and Matsushita are taking it in one hit, but for many companies this will be a big blow."

Ohmae says that in the approach to this crunch date, no-one will be in charge in the US with the presidential transition. And no-one will be in charge in Japan, either.

He cites the current Japanese popular wisdom that the Prime Minister, Mr Yoshiro Mori, has the brain of a louse.

A dangerous period? Yes, says Ohmae - just perfect for getting some change.

-- Carl Jenkins (somewherepress@aol.com), November 29, 2000