Billionaire Sounds Warning on Japan Economy : Real estate: Developer Sasaki says the land bust will drag everything down with it unless the government acts soon.
Three years ago, real estate developer Kichinosuke Sasaki, 59, traveled regularly to Italy. He took Jeep rides into the mountains to personally pick out the finest marble for his luxury office complexes. He could afford to be picky. His $4 billion worth of properties--92 buildings in the center of Tokyo--made him one of a handful of Japan’s richest billionaires.
Today, those lavishly furnished buildings of marble and granite are like tombstones marking the death of an era. A showy Tokyo office building Sasaki completed in February at a cost of $770 million is empty and surrounded by a steel fence because Sasaki hasn’t paid the builders.
The silver-haired billionaire, a beneficiary of the speculative bubble that sent stock and land prices sky high in the 1980s, has become a victim of the bubble’s burst. But Sasaki has no intention of quietly disappearing like many of his fellow developers. He has formed a “debtor’s” society, the Assn. for the Rebuilding of the Japanese Economy (JEC), whose goal is to expose Japan’s financial crisis in an effort to force the government to intervene and prop up land prices.
Relaxing in his penthouse office, complete with marble bar and Italian designer furniture, Sasaki likes to preach his gospel of despair to anyone ready to listen.
“This is Japan’s second major defeat after World War II,” says Sasaki. The Pacific War, he claims, cost Japan $1.6 trillion in lost assets. Rising land prices laid the basis for Japan’s phenomenal rise; the plunge in land prices will lead to its decline. “We’re close to national bankruptcy,” says Sasaki.
Sasaki estimates the real estate crash has already resulted in $6.4 trillion in lost value. Stock and land prices, already down about 50%, will continue to slide, he says. Financial institutions, whose bad debts he contends have climbed to $1.2 trillion--10 times official estimates--will face major bankruptcies. “Just watch,” he says with a sly smile. “Things will get interesting after the new year.”
Sasaki blames the decline of his fortunes on the Finance Ministry, which ordered banks to stop lending money for real estate transactions in 1990, just as the Bank of Japan abruptly began to raise interest rates. He said he believes that the moves were made under pressure from a United States seeking to undermine Japan’s competitive prowess. “If I was (America) I would have done the same thing, this undercuts Japan’s economic power,” he says.
Finance Ministry officials now admit that they may have moved too sharply to put the brakes on speculation. But officials insist there is no impending financial crisis. A Ministry of Finance official says the ministry has chosen to ignore Sasaki and his group after a brief investigation because they are “related to right-wing groups and possibly gangsters.”
But Sasaki may not be so easily dismissed, since many observers see more than a grain of truth in his assertion that the government is downplaying the extent of Japan’s financial problems.
Tetsuo Tsukimura, chief economist at Smith Barney Harris Upham International, also estimates that the total bad debt--loans on which financial institutions are not receiving regular interest payments--is far higher than official estimates. He puts the figure at as much as $800 billion, compared to the government’s official estimate of about $100 billion.
Such debts will make it difficult for banks to supply the money the economy needs to pull out of its current slump. Tsukimura predicts Japan’s economy will shrink in the current quarter that ends Dec. 31, making it the first time since World War II that Japan’s economy has shrunk for three consecutive quarters. For the first time in years, there are now more people looking for work than there are jobs to fill.
The Japanese government’s efforts to minimize the problems of its financial institutions may ultimately end up giving more credence to claims such as those made by Sasaki. Although economists do not believe that there is an impending crisis because banks own many “hidden assets” that can be used as capital in a pinch, government policies allow financial institutions to use various accounting devices to hide their debt problems to avoid bank runs.
That makes it difficult for analysts to assess the true breadth of the problem. The Finance Ministry is also artificially supporting the stock market, another measure of economic performance, by pressuring trust banks to invest pension funds in the market whenever it falls to uncomfortable levels.
Sasaki wants to force the government’s hand by working in the coming months with muckrakers and fellow debtors to expose the extent of the banks’ problems. Such exposure, Sasaki hopes, will make the public aware of the danger and force the government to act.
As a rule, real estate developers are not generally considered a reputable bunch in Japan. They frequently use gangsters to chase out tenants to clear land for development. Nevertheless, Sasaki is not your typical developer. A graduate of Japan’s top medical school, Keio University, Sasaki opened his own clinic in 1964 with a $16-million loan from a patient. Within seven years, he had not only paid off the loan, but had enough money invested in downtown Tokyo real estate to quit working as a doctor and start Togensha, his real estate company. Whether smart or just lucky, his investments in the popular entertainment districts of Roppongi and Akasaka soared in value.
When land prices began to fall last year, everybody was hit. Some reacted in bizarre ways. A 27-year-old real estate company president recently kidnaped a young girl and asked her father for a ransom in hopes of paying off his $160,000 in debts.
Sasaki moved in August to establish the JEC in hopes of using political pressure to get a bailout for real estate companies. The group’s members have one thing in common: debt. At a recent meeting, the 350 attendees claimed to have a collective debt of $24 billion. Sasaki, with $3.2 billion in debt, topped the list.
Their message is simple: Unless the government moves soon, disaster will strike. One speaker at a recent meeting compared Japan to “the Titanic heading into a sea of icebergs while the captain and crew scamper around below killing cockroaches.” A financial collapse in Japan, he said, would ricochet around the world, bringing about a worldwide financial meltdown.
In an effort to press its case, the group has resorted to some questionable tactics. Diplomats from dozens of countries were invited to one JEC meeting on the pretext that the meeting was about Japan’s effort to create a new economic bloc. The diplomats found themselves being used as public relations props.
“They (the diplomats) wanted to attend because they know a crisis in Japan means a crisis in the world,” said an attorney, speaking before television cameras at the meeting.
“The topic is of utmost importance because the Japanese economy has been a locomotive for the world,” said the keynote speaker, the Nicaraguan ambassador to Japan.
But the diplomats admitted later that they had no idea the group represented real estate developers.
The JEC also organized a rally of 1,500 in central Tokyo last week to protest the government’s financial policies. While such rallies will get little sympathy from the average Japanese citizen, Sasaki says some upcoming exposes on major Japanese banks should start getting people scared. Says Sasaki: “People will recognize the dangers to the Japanese economy.”
