Like Japan, many countries are relying on compliant central banks to keep rates low and economies moving. After World War II, Japan encouraged companies to think very long term. Investing in research and development and winning market share took precedence over short-term profits. Part of the strategy was ensuring cheap bank financing and that meant help from the central bank, which kept borrowing costs low.
Asian economies like South Korea -- arguably the one that most closely followed the Japanese strategy -- did as much. Nowadays, low interest rates aren't having their intended effect. Borrowers aren't stepping up and banks are getting pickier about who gets loans. The dilemma -- as we've seen in Japan -- demonstrates how loose monetary policy can sometimes be a crutch. If your central bank will bail you out with cheap money, why pursue unpopular reforms? Yet many observers aren't convinced that Asia will soon experience Japan's troubles.
When the Thailands, South Koreas and Indonesias of the world are in recession, social forces demand change. In Japan, however, one senses far less pressure for change from below. "Other Asian countries don't have the money, technology and culture to tolerate the kind of prolonged distress you see in Japan," says Chua Soon Hock, chief executive at Asia Genesis Asset Management Pte in Singapore.
Still, the rest of Asia might be wise to pay attention to Japan's history over the past decade. Surely they don't want to see a repeat of it in their own economies.
RSS