Is Japan Holding The Rest of the Sub-Primes?

Posted on the UK Telegraph on the 13th Feb 2008: Japan is the next sub-prime flashpoint

Mr.Ambrose Evans-Pritchard writes that..

• The nagging fear is that Japan's lenders - the conduit for the world's greatest stash of savings - have taken on a far bigger chunk of mortgage securities, collateralised loans obligations and other exotica from America's structured credit boom than they have yet revealed

According to Mr. Ambrose,

• Americans and Europeans have so far confessed to $130bn of the estimated $400bn to $500bn of wealth that has vanished into the sub-prime hole. Somebody, somewhere, must be sitting on a vast nexus of undisclosed losses. We may find out soon enough whether the hold-outs are in Japan. The banks have to come clean under the country's strict new audit codes by the end of the tax year in March.
  
  "We think this is where the next big problem is going to pop up," said Hans Redeker, currency chief at BNP Paribas.
  
  "We know from Bank of Japan's lending survey that the banks are already tightening hard, so something is brewing. Right now, we are in the lull before the second storm in global markets, and Asia is going to be the source of the nasty surprises," he said.

How? Do you think that this is a possibilty?

Mr. Ambrose then continues..

• There is not much monetary ammo left. Interest rates are 0.5 per cent. So it's back to zero, and helicopters of central bank cash ("quantitative easing"), those peculiar hallmarks of Japan's past battle with deflation. The brief attempt to "normalise" Japan Inc has already failed.
  
  We tend to forget that Japan remains the world's top creditor nation by far, the shy master of fate. The country's net foreign assets of $3,000bn roughly match the net debts of the US.
  
  The yen "carry trade" - borrowing cheap in Tokyo to chase yields from New Zealand, to Brazil, Iceland, and above all Britain - has juiced the global asset boom this decade by $1,000bn. It is perhaps the biggest liquidity pump of them all, yet it stopped pumping in August. Indeed, it is sucking the money back out again. The yen is soaring.
  
  Where have the Japanese recycled the quarter trillion dollars they earn each year from their surplus? Official data shows that their holdings in US Treasury bonds have not risen.
  
  The Swiss offer us a clue, says Redeker. They are Europe's Japanese, champion savers looking for returns abroad. They devoured US sub-prime debt on a much bigger scale per capita than the Americans. Hence the $24bn in write-downs by UBS.
  
  So far, Japan's biggest three banks have admitted to just $4.7bn in total losses between them. The figure is rising. Mitsubishi, the biggest, has just raised its tally to 12 times the sum admitted in November. This looks like a replay of the early 1990s when fear of losing face delayed the awful news. ( read the whole article here )