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ANALYSIS: Japan's self-inflicted wounds

"This is a typical Japanese reaction to a crisis. A mea culpa kind of mentality drives people into changing everything totally in one go, without really thinking of the consequences, and with total disregard for the actual economic environment."

Noriko Hama, professor at Doshisha Business School

Never mind the US subprime loan crisis, the main cause of Japan's lackluster economic performance this year is entirely self-inflicted, according to analysts.

While investors are crying out for less red tape, efforts by Japan's government to protect consumers and homeowners have taken the wind out of the sails of Asia's largest economy even as global growth falters, they say.

The Japanese government recently slashed its growth forecast for the fiscal year to next March to 1.3 percent from a previous target of 2.1 percent, following in the footsteps of a host of independent forecasters.

One of the main reasons for the worse than expected performance this year is a slump in activity in the housing construction sector following the introduction of stricter earthquake resistance standards, analysts say.

Housing starts in Japan slumped for the fifth straight month last month, down 27 percent from a year earlier, following falls of 35 percent in October, 44.0 percent in September and 43.3 percent in August.

Japan tightened the building regulations in June after a Japanese architect caused a nationwide scandal by using fabricated data in the building of apartment blocks, rendering them potentially vulnerable to collapse during even a moderate tremor.

Nearly 100 condominiums and hotels designed by the architect were found to have been built using false earthquake resistance data, shocking a nation that endures 20 percent of the world's major tremors.

Following the introduction of the new rules, it now takes more than two months to obtain a construction permit, compared with three weeks previously.

MEA CULPA MENTALITY

"This is a typical Japanese reaction to a crisis," said Professor Noriko Hama, an economist at Doshisha Business School in Kyoto. "A mea culpa kind of mentality drives people into changing everything totally in one go, without really thinking of the consequences, and with total disregard for the actual economic environment."

The nation's construction sector is not the only area of the economy to have been affected by new regulations.

In December last year the government introduced a new law to clamp down on consumer credit firms, drastically reducing the previously high interest rates they were allowed to charge borrowers.

The aim was to prevent poorer Japanese from suffocating under a mountain of debt, amid public concerns that the nation's income gap is widening.

But, according to local media, the move has forced some households desperate for cash to turn to the black market.

The growing web of red tape has also irked investors, adding to worries about the fallout from the US housing slump.

"Japanese policy decisions are based on political, not economic, rationality," Dresdner Kleinwort analyst Peter Tasker says.

"`Safeguarding consumers' is always a popular line to take, even if it involves crushing economically important sectors such as consumer finance and house-building," he said in a report published recently.

SCOURING THE RECORDS

With the consumer in mind, Japan's financial watchdog forced life insurance companies to scour their records dating back more than 30 years over the non-payment of benefits to policy holders who failed to submit claims when they were entitled to do so.

This colossal task took months and required the hiring of thousands of extra workers.

"The total cost for the insurance companies is calculated to be around two billion dollars," said Hitotsubashi University's professor Ryuji Yasuda.

"Economically, it is a huge damage," he said, adding that the measures had also raised a distrust of insurers among consumers that could inflict long-term damage on the industry.

"Now the policy holders view everybody as cheaters. It creates some very irresponsible activity of the consumer. In the US, unless you claim, you are not paid -- it is your responsibility.," he said. "But here, unfortunately, they are overprotecting the consumers," he said.
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