Hello Prof. Ueno:

I just have one question from my international accounting coverage.  Japan is known to have the second largest capital market.  Is it primarily debt securities?  Is it true to assume that the uniqueness in Japan is that government is the debtor and the Japanese people are the creditors or investors in debt securities?

Thanks,

 Orapin Duangploy, Ph.D., CPA
 Professor of Accounting
 University of Houston-Downtown
 (September 9,2002)
　

Hello Prof. Duangploy;

I would like to answer your questions.
When people say that Japan is the second largest capital market, it means that the capitalization of the Japanese company's shares listed at Japanese stock exchanges is the second following to the USA.

Total amount of bonds issued by the Japanese government is almost
$3.7trillion. But, Japanese banks, institutional investors and individuals own 95% of the amount. Other government debt such as bank borrowings is $1.3 trillion, and that is financed domestically. Total government debt is $5 trillion. In contrast with Japan,  almost 45% (?) of US government bonds are owned by foreigners including Japanese government and institutional investors.

During the past several decades, Japan has been the biggest creditor country in the world. In the past decade, the US is the biggest debtor country. As you know, the US has been suffering huge trade deficits because of over-consumptions in the past several decades. The US has financed money through inbound capital investment from Japan, Saudi Arabia and others.

There are two reasons why Japan's domestic economy has stagnated: (1) Older people who holds 60 % of the nation's wealth do not spend their money for consumption. (2) Companies avoided domestic investment because of the  high cost structure of Japan. They chose Asia, America and Europe, rather than their home countries. The behavior is called, "conflict of interests between a nation and MNEs."

Thank you!

Susumu Ueno
(September 9,2002)