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Japanese banking collapse threatens IT sector

Market dominoes on verge of toppling

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The technology sector is in danger of a meltdown, starting from Tokyo. The Governor of the Bank of Japan, Masaru Hayami, told US Treasury Secretary Robert Rubin and Federal Reserve chairman Alan Greenspan on Saturday that the top 19 Japanese banks were severely under-capitalised -- to an extent greater than had been previously admitted. A senior Japanese official at the World Bank/IMF meeting said that "if the rules were vigorously pursued" Japanese banks might be prevented from trading internationally, since capital on hand was less than eight per cent of outstanding loans. Within Japan, this level is allowed to drop to four per cent, and there are indications that this barrier may have been breached in some cases. A face-saving operation started last night, with Japanese Ministry of Finance officials denying that dangerous levels of liquidity had been reached, and claiming that Hayami's presentation was deeply flawed. They produced alternative data based on calculations using Bank of International Settlement standards, which they said showed that the biggest banks mostly were above the eight per cent threshold. Their comments must be seen in the light of heavy criticism of the mismanagement of bank regulation in Japan by the Ministry of Finance. Former Japanese prime minister Kiichi Miyazawa called on the Japanese parliament to support the banks by an enormous injection of capital -- a move that would be not at all popular in Japan. The fact that these admissions have surfaced suggests that Hayami wanted to put pressure on the Japanese parliament to enter face-saving mode and vote the necessary funds. Bill Clinton wants the IMF to act pre-emptively where there is danger of a banking system or currency coming under pressure. Tony Blair supported Clinton's plan, and hoped that Congress would vote an anticipated $18 billion to the IMF. It is unlikely that any plans made now could become operational for a few weeks, so during this period there is a heightened risk of market collapse, starting with the Japanese banking sector and spreading immediately to the technology sector and thence to the rest of southeast Asia and the world. It is a very serious situation. ® Click for more stories

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