Bending Adversity: Japan and the Art of Survival by David Pilling Page A
Authors: David Pilling
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hurrah. When the price of shares began to sink the following year, Onoue was presented with a problem that not even her toad knew how to fix. It was then she hit upon the idea of keeping the whole thing going by getting managers of one bank to issue fake deposit receipts, which she used to free up cash and securities lodged with other institutions. It was a convoluted scheme that got her deeper into trouble as shares continued to slide. In August 1991, she was arrested for fraud. An investigation discovered that a senior executive from Yamaichi Securities – not the gods after all – was the true source of the toad’s inspiration. As her financial empire crumbled, it was almost inevitable that Onoue became known as ‘The Bubble Lady’. She was sentenced to twelve years. 1
Onoue’s story encapsulates the madness of the bubble, which lasted from the mid-1980s to the end of the decade. Stories from that era are legendary, and quite possibly apocryphal. They tell of how businessmen would think nothing of giving thousands of dollars in tips to a favourite hostess, asking little in return save that she laugh coquettishly at their jokes. They tell of people sprinkling gold leaf on their food like salt and pepper, a practice that – if truth be told – persists in some of Japan’s more upmarket restaurants to this day. They tell, too, of the golf memberships that traded on the secondary market, bought and sold by speculators with no intention of ever actually donning golfing apparel and teeing off.
The bubble was encouraged by the belief, derived from post-war experience, that when it came to property prices, the forces of Sir Isaac Newton no longer applied in Japan. It was further puffed up bya heady mix of easy money, financial deregulation, a strong yen and low interest rates. The main human ingredients, as so often, were fear and greed. The bubble is sometimes presented as proof that Japan’s economic system, so lauded by credulous admirers only a few years before, was deeply flawed. It is true that Japan’s economy chased market share over profits. It is true too that the system worked best during the catch-up years, but less well once Japan had reached a western standard of living. But the country’s bubble was partly just an inevitable consequence of decades of rapid growth, an exuberant overshooting. As Americans and Europeans have themselves become all too aware in recent years, irrational exuberance can grip the western imagination too.
In Japan, property prices were driven ever higher as companies, many with entirely unrelated businesses, borrowed money to put into escalating real estate. Those that didn’t participate found their performance falling behind competitors that were bingeing on property. At one stage, the choicest buildings in Ginza, the most upmarket commercial district in Tokyo, were fetching $20,000 a square foot. By comparison, in 2011, property in London’s Knightsbridge, one of the city’s most exclusive areas, cost a tad over $3,000. 2
The other favoured investment was shares. These also seemed a safe bet, partly because their prices kept ascending and partly because their value was propped up by friendly shareholders who held them as cross-shareholdings in the
keiretsu
system. Share prices rose beyond what was considered normal, but, as usually happens in such circumstances, market gurus came up with explanations for why the Tokyo market was different. Shares in Nippon Telegraph and Telephone, for example, were trading at what stockbrokers call a price-earnings ratio of 300, implying that it would take 300 years of profits to cover the share price. 3
Many date the start of Japan’s extraordinary excesses – and hence its drastic decline – to a meeting of the finance ministers and central bank governors of the US, Germany, Britain, France and Japan held in New York’s Plaza Hotel in September 1985. It was a very upmarket mugging. The upshot was that Japan, together with the
Onoue’s story encapsulates the madness of the bubble, which lasted from the mid-1980s to the end of the decade. Stories from that era are legendary, and quite possibly apocryphal. They tell of how businessmen would think nothing of giving thousands of dollars in tips to a favourite hostess, asking little in return save that she laugh coquettishly at their jokes. They tell of people sprinkling gold leaf on their food like salt and pepper, a practice that – if truth be told – persists in some of Japan’s more upmarket restaurants to this day. They tell, too, of the golf memberships that traded on the secondary market, bought and sold by speculators with no intention of ever actually donning golfing apparel and teeing off.
The bubble was encouraged by the belief, derived from post-war experience, that when it came to property prices, the forces of Sir Isaac Newton no longer applied in Japan. It was further puffed up bya heady mix of easy money, financial deregulation, a strong yen and low interest rates. The main human ingredients, as so often, were fear and greed. The bubble is sometimes presented as proof that Japan’s economic system, so lauded by credulous admirers only a few years before, was deeply flawed. It is true that Japan’s economy chased market share over profits. It is true too that the system worked best during the catch-up years, but less well once Japan had reached a western standard of living. But the country’s bubble was partly just an inevitable consequence of decades of rapid growth, an exuberant overshooting. As Americans and Europeans have themselves become all too aware in recent years, irrational exuberance can grip the western imagination too.
In Japan, property prices were driven ever higher as companies, many with entirely unrelated businesses, borrowed money to put into escalating real estate. Those that didn’t participate found their performance falling behind competitors that were bingeing on property. At one stage, the choicest buildings in Ginza, the most upmarket commercial district in Tokyo, were fetching $20,000 a square foot. By comparison, in 2011, property in London’s Knightsbridge, one of the city’s most exclusive areas, cost a tad over $3,000. 2
The other favoured investment was shares. These also seemed a safe bet, partly because their prices kept ascending and partly because their value was propped up by friendly shareholders who held them as cross-shareholdings in the
keiretsu
system. Share prices rose beyond what was considered normal, but, as usually happens in such circumstances, market gurus came up with explanations for why the Tokyo market was different. Shares in Nippon Telegraph and Telephone, for example, were trading at what stockbrokers call a price-earnings ratio of 300, implying that it would take 300 years of profits to cover the share price. 3
Many date the start of Japan’s extraordinary excesses – and hence its drastic decline – to a meeting of the finance ministers and central bank governors of the US, Germany, Britain, France and Japan held in New York’s Plaza Hotel in September 1985. It was a very upmarket mugging. The upshot was that Japan, together with the
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