Financial Sector Profitability and Double-Gearing

In this paper, I show that Japan will not be able to have a viable banking sector without stopping deflation. The banking industry has not shown a profit since fiscal 1993 (ended March 1994) if one excludes capital gains from stock and real estate portfolios. I quantify the financial condition of the sector and show that interest margins have been too low to cover the increase in loan losses brought about by the weak economy. Banks cannot raise margins for several reasons: competition with subsidized government sponsored financial institutions (GFIs); intense political pressure, backed by the Financial Services Agency (FSA), to make new loans to small and medium companies; and deflation-weakened borrowers. I expect that the Japanese government will have to nationalize most of the banking sector by 2005. Capital injections will not solve the problems. Established Japanese life insurance companies are also troubled because they over-promised the amount that they could pay. This can be corrected through a reorganization where the promised interest rates are cut. But this is complicated because Japanese banks and life insurance companies are providing each other capital a practice called double-gearing. Weakened banks ask insurance companies to provide equity capital and subordinated loans. In return, the mutual life insurers ask banks to subscribe their surplus notes (similar to non-voting redeemable preferred shares) and subordinated debt. The risks of double-gearing are analyzed.

The Effects of 'Gesell' (Currency) Taxes in Promoting Japan's Economic Recovery

The traditional interest rate policy has lost its potency due to the zero-lower bound of nominal interest rates and the gradual accelerating deflation in Japan. Without stopping deflation, the Japanese government may face a rapid erosion of credit worthiness due to an uncontrolled budget deficit. In order to cope with this unusual situation, a non-traditional monetary policy measure is proposed. A negative nominal interest rate is needed to clear Japanese markets and can be achieved by levying a tax on all the government-guaranteed yen financial assets. This is a modified version of Gesell's stamp duty on currency for actual implementation in the contemporary context. The benefits and side effects of this tax for Japan are analyzed here.

Simulation Analysis of the Revision of the Survivors' Pension System (Japanese)

In this paper we discuss the impact of potential proposed revisions to the survivors' pension system on the stability of pension finance and on intergenerational and intragenerational equitability. The three proposals we study are: (1) the proposal that the survivors' pension benefit be reduced to approximately 50% of the husband's benefit, as in Europe, (2) the proposal that the pension benefit received by a husband-wife household be revised to the income-averaging method in which the contributions of spouses are averaged over the duration of the marriage in calculating the amount of pension benefits of the spouses, and (3) the proposal, modelled on the Swedish method, that survivor benefits be separated from the Employees' Pension Insurance system, the funding based on general tax revenue, and employee pensions netted off by the amount of the survivors' benefits, based on the insurance principle. Our conclusions are as follows. First, so long as the current public pension system is built on the Basic Pension System which apportions benefits to every pensioner, it will not be possible to consider reducing the period of application of the macroeconomic slide system, as that would lead to the destruction of the National Pension System. In view of this, if these revision proposals were implemented it would be appropriate to alleviate the burden of Employees' Pension Insurance premiums. An incidental effect of this would be that the amount of the reserves of the public pension system, which are forecast to accumulate astronomically under the present finite balance system, could be reduced to some degree. This could be expected to have the effect of alleviating or avoiding the risk arising from fluctuations in investment returns. In addition, with regard to the internal rate of return (IRR) of employee pensions, we examine the impact of each of the revision proposals on different generations within and between types of household. The implementation of each of the proposals would give rise to the existence of vested pensioners who suffer declines in IRR, particularly in the model households for the middle-aged and elderly generations, though many households, in the young generation in particular, would benefit from a lower insurance premium burden. Combined with the fact that under the finite balance system it will primarily be the young generation that benefits from the run-down of the reserves left by the middle-aged and elderly generations, the generation gap can be expected to narrow somewhat. We also confirm that, as would be expected, the reduction and separation of the survivors' pension benefit generally reduces the gap between the model households and the other types of household.

ニホン ケイザイ ノ テンボウ ト セイチョウ センリャク キンユウ キキ ノ エイキョウ ト チョウキテキ カダイ

ビジネスフォーラム講演記

Establishing Principles for a More Sustainable Pension System in Japan, and Identifying Challenges (Japanese)

This paper looks into the intermingling of the self insurance and public assistance principles in Japan's government-sponsored pension system that has been eroding public trust in the system. Using a newly developed pension funding model (the RIETI model), we analyze options for reforms quantitatively by clarifying the respective roles to be played by the financially fair insurance model and public assistance to poor retirees. In particular, we have simulated a pair of reform options: (1) fund the entire Basic Pension by the national treasury as a form of minimum guarantee to all the people in accordance with the assistance principle and Employees' Welfare Pension will be purified as a earning-related financially fair system on top of the Basic Pension, (2) reorganizing the National Pension and Employees' Welfare Pension systems into a new integrated, single-tier pension based on an earnings-related financially fair mechanism, with a supplementary pension for low-income pension recipients paid entirely from the national treasury on the basis of the assistance principle. In the first reform option, if the level of Employees' Welfare Pension contributions set out in the 2004 pension reform were maintained for second-tier contributions, a benefit multiplier of approximately 1.91 times the current rate could be achieved. If benefits were maintained at the levels set in the 2004 reform, the contribution rate for the second-tier pension could be reduced to about 11.93%. In these cases, an additional 7-point hike in the consumption tax would be required to fund Basic Pension benefits at the peak of old-age population. In the second reform option, the additional consumption tax would be relatively low, but the asset size of the earning-related pension system would greatly expand, creating a reserve fund twice as large as that under the current system. We have concluded that the capital market impact of introducing such a system needs to be taken into consideration. Furthermore, our simulations demonstrate that switching to such a system would significantly change the relationship between benefits and contributions. Therefore introduction of the new system would improve the return on contributions for some income groups and diminish it for others.

Association between the tissue accumulation of advanced glycation end products and exercise capacity in cardiac rehabilitation patients

Background Advanced glycation end products (AGEs) are associated with aging, diabetes mellitus (DM), and other chronic diseases. Recently, the accumulation of AGEs can be evaluated by skin autofluorescence (SAF). However, the relationship between SAF levels and exercise capacity in patients with cardiovascular disease (CVD) remains unclear. This study aimed to investigate the association between the tissue accumulation of AGEs and clinical characteristics, including exercise capacity, in patients with CVD. Methods We enrolled 319 consecutive CVD patients aged >= 40 years who underwent early phase II cardiac rehabilitation (CR) at our university hospital between November 2015 and September 2017. Patient background, clinical data, and the accumulation of AGEs assessed by SAF were recorded at the beginning of CR. Characteristics were compared between two patient groups divided according to the median SAF level (High SAF and Low SAF). Results The High SAF group was significantly older and exhibited a higher prevalence of DM than the Low SAF group. The sex ratio did not differ between the two groups. AGE levels showed significant negative correlations with peak oxygen uptake and ventilator efficiency (both P <0.0001). Exercise capacity was significantly lower in the high SAF group than in the low SAF group, regardless of the presence or absence of DM (P <0.05). A multivariate logistic regression analysis showed that SAF level was an independent factor associated with reduced exercise capacity (odds ratio 2.10; 95% confidence interval 1.13-4.05; P = 0.02). Conclusion High levels of tissue accumulated AGEs, as assessed by SAF, were significantly and independently associated with reduced exercise capacity. These data suggest that measuring the tissue accumulation of AGEs may be useful in patients who have undergone CR, irrespective of whether they have DM