The Asian banking and currency crisis could spread to Japan. Japanese banks are weak as it is.
This appeared in the Australian Financial Review (Oct. 30).
* * * * * * * *
The major economy most vulnerable to an acute financial crisis is now Japan, according to a world authority on international finance.
Morris Goldstein, of the Institute for International Economics in Washington DC, said yesterday that problems with financial systems were "fairly widespread" among the major economies of North Asia -- Japan, South Korea and China.
"But if you look at where systemic risk is largest, it's in Japan -- there's no doubt about it, because it comes on top of other things that have happened there," he said in an interview in Sydney. . . .
He said Japan was set for "a truly world-class banking crisis". Already three Japanese banks had collapsed.
A senior economist with Nomura Securities in Tokyo, Nobuya Nemoto, agrees that the crisis could soon enter an acute phase.
"Another two or three banks will collapse this fiscal year, to the end of next March, and the Deposit Insurance Corporation is supposed to support them, but they have no funds left," he said.
"The problem has become so big that it is politically impossible to use public funds to rescue them."
Dr Goldstein said the economic crisis in Asia was unusual because it was moving from small countries to big. Financial crises typically began in a major economy and then infected smaller ones. . . .
The notorious US savings and loan crisis was insignificant by comparison. The cost to the public sector of solving that crisis was only around 3 per cent of the country's total economic output or GDP.
Jardine Fleming estimates that the ultimate cost to the Japanese Government will be 11 per cent of GDP or about $US500 billion.