Les ressorts de la crise financière majeure de 1997-98 au Japon : de la responsabilité du politique à l’action du superviseur

Abstract

The process of the 1997-98 major financial crisis in Japan : Politics responsability & the design of Financial Regulation under stress This paper is studying the solvency deterioration process of Japanese financial institutions during the major systemic crisis that occurred between summer 1997 and fall 1998. Since the bursting of the bubble economy, both banking system and giant mutual life insurance companies were struggling with huge losses in their balance sheet, that we are impossible to assess clearly. Destabilizing properties of those imbalances have been underestimated until the triggering of the crisis. After eight years of deterioration, their unconfessed state of global illiquidity and insolvency is suddenly revealed. Financial instability then reproduces fundamental uncertainty in real economic behaviors, to firms through a widespread credit crunch, and to households through threats of various nature on their savings. Risk adverse behaviors develop in a depressing economic environment, nourishing a vicious circle and leading Japan into deflation, from the first quarter 1998. In this destructive dynamics, Japanese political system sluggishness is the true nexus of all economic strains. Against this stress, both monetary policy and prudential regulation developments act as lenders of last resort, as their priority goal is then to back the threatened payment system. Calamitous financial crisis management by Japanese authorities generated concurrently moral hazard in financial institutions’ international portfolio management strategies. Consequences have been the yen/ dollar sliding until summer 1998 and destabilizing positions blowing up on US dollar financial markets. Those dangerous market disturbances were brought to the fore as yen quickly took of, also revealing weakness of our present international monetary system architecture. JEL Classification : E32, G20, O53