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Summary and Comments

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Category: 

Banking

Date: 

1998-05-11 07:34:34

Subject: 

Japanese Banks Have Barely Begun Y2K Efforts

  Link:

http://www.afr.com.au/content/980511/world/wtokyo.html

Comment: 

The Japanese banks are the largest on earth. They are now facing a crisis: the fall of the Asian banking system. They have made bad loans to Asian nations. This crisis is on top of the banks' post-1989 capital crisis: the end of the bubble economy.

The bankers, like other Japanese executives, have ignored y2k. They have deferred making the repairs. Japan is suffering from a shortage of trained software technicians.

If Japan's banks fall, they will pull the rest of the world's capital markets into worldwide depression.

The bank runs may begin in Japan in 1999. Japanese housewives are not hypnotized by the illusion of "good, old fashioned American ingenuity." The Japanese view American products as second rate. When they at last learn of y2k, they will understand the truth: there is no solution. The bank runs will then begin.

This is from the AUSTRALIAN FINANCIAL REVIEW (May 11).

* * * * * * * * *

Japan is falling behind in dealing with the Year 2000 problem, which is adding to the risks of dealing with the country's troubled financial system.

Financial institutions from the United States have started to become more vocal in their criticism of Japan's laggardness because they fear a collapse of the settlement system when Y2K arrives.

The Y2K problem is potentially more damaging in Japan because, as a result of its main bank system, financial intermediaries play a much more dominant role in the economy than elsewhere. . . .

A recent Japanese Government survey found that all the major city banks were working on the problem. None had dealt with it.

Among securities companies, 18 per cent had dealt with the problem, 62 per cent were working on it and 20 per cent were either investigating it or had done nothing. . . .

The shortage of engineering staff in Japan is slowing the pace with which Japan deals with the Y2K problem. A survey by the Japan Information Service Industry Association in July 1997 found that almost 50 per cent of Japanese companies had not secured the necessary engineers. . . .

Concern is growing that not only has Japan failed to deal quickly with the problem, but that it has dramatically underestimated the total size of it.

In the UK, which is a much smaller economy than Japan, the cost of dealing with the Y2K problem is estimated at $47 billion. In the US the estimated cost is $165 billion. . . .

The American Chamber of Commerce in Japan, which represents all the US financial institutions, says government leadership on Y2K is urgently needed.

There are three primary factors which make the Japanese financial industry particularly vulnerable to risks associated with the Y2K problem, according to the ACCJ.

The first is the relative concentration of key failure points in trade settlement in Japan. Most securities and cash settlements are done through one of three systems: BOJ Net, JBNet, and the JASDEC service. Many of the ACCJ's member companies are concerned by the absence of authoritative information and central co-ordination as to the Y2K compliance status of these systems including the planned schedule of user tests.

The second factor identified by the ACCJ as making Japan vulnerable is the practice of "no fail settlement". Present market practice suggests failure to deliver could result in suspension from trading by the Ministry of Finance. Failure to settle is not uncommon in Western markets and there are clear procedures for firms to follow in these cases. In Japan, there is no fall-back mechanism to handle failed trades and recourse to manual settlement, including telex or telephone confirmation and physical delivery, is not a viable alternative.

Thirdly, the ACCJ believes many Japanese firms have become complacent because of the relative ease with which many Japanese systems were reprogrammed eight years ago when the Japanese calendar changed from Showa to Heisei after the death of the Emperor.

However, Heisei dates are used for printing, reporting and display purposes and not for date-based calculations -- so the programming changes for Y2K will be far more complex and costly.

Link: 

http://www.afr.com.au/content/980511/world/wtokyo.html

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