It’s about Loss of Face! Writing off bad debts to banks causes loss of face to both the Banks and the Borrowers.

Let’s look at this chart of the Nikkei 225 Index, their main stock exchange index:

The Index on Friday 17th August was still only 22,270.38

That is an incredible 44% below its all-time peak in December 1989!

Why has this happened when most other western stock markets are at or near all-time highs?

Have a look at the attached chart of the Nikkei 225 Index. Key points:

1. Topped out at nearly 40,000 in 1989.

2. Bottomed out at about 8,000 in 2008-09. Fall of 80%!

3. Still only around 21,000, almost 50% below its peak.

4. All other major markets are at near or all-time highs.

I believe the main reason for this is the Asian “loss of face” factor. Banks have refused to write off bad debts as both the banks and customers would lose face! The Japanese Credit Rating is only A+ or A1. This is below AA-. AA- is the lowest credit rating that Basle III will allow for new long-term borrowing facilities, or even the rolling over of existing loans when they mature.

Conclusions:

1. The USA and UK took the hit, wrote off bad debts, recapitalised, sold the broke businesses and moved forward

2. The Japanese refused because of the loss of face issue. Hence, they are still stuffed

Peter