JAPANESE PANIC.

Taranaki Daily News, 14 August 1920, Page XIII

JAPANESE PANIC.

" THE PART OF FINANCE. (By Dr. J. Ingram Bryan, in the Sydney Morning Herald.) The reactionary tendency which hegan in Japanese finance more than a mfinth ago (April) has continued, until repeated slumps on staple markets and on the stock market have .brought a state bordering on panic. The stock market, as well 'as some of the sugar mills and weaving establishments, received asvstance from the Government, and the benefit, though moral rather than actual, served to enhance faith in the business world. There is no reason, however, to believe that business instability is nearing an end, and conditions will in all probability be worse before they are better.

Indeed, the difficulty is one that has been long overdue, for 'he unprecedented expansion of currency aid enormous inflation of credit could not go on unrestrained, and the banks have been warned more than once to curb speculation. In spite of a tightening money murkot, new enterprises were being recklessly floated, and by the end of March last the total figure for new undertakings was as much as 4,445,222,750 yen, or more than that for a whole yew in Japan's past economic history. This figure is some 3,000,000,000 more than for the first three months of last year. This has been largely due to the action of the Bank of Japan in issuing notes and advancing credit beyond bounds, The manufacturer goes to the bank for loans to carry on or launch new enterprises. The size of the loan will be influenced by his net assets as compared with his current liabilities, With the proceeds of the loan the borrower can bid up the market for materials, and secure workers by offering higher wages. Tliis enhancement of prices enhances the value of his stock on hand when he seeks the next loan. Thus the granting of credit immediately tends to increase prices by putting new power into the hands of the borrower, and by increasing the amount of currency in circulation. Inflation is the cause, and not the result of high prices. This has gone on in Japan until the banks can no longer stand the strain, and the bubble must burst. One has only to glance at the progress of currency inflation in Japan to see the truth of this. The expansion has been greater during the last three years of the war than during the previous decade. At the end of the year 1914 the note issue of the Bank of Japan was only 385,589,090 yen. By the end of 1917 it had increased to 831,371,857 yen. At the end of March this year it had swollen to 1,305,100,000 yen. At the same time the amount of currency increased to 1,904,034,207 yen, or nearly three times the total of the corresponding date in 1919. At present the Bank of Japan loans must exceed 750,000,000 yen—ft marked contrast with the amount of loans at the end of 1914, which totalled only 87,285,203 yen. The progress of profiteering, too, has lent impetus to speculation and expansion of credit, the index number rising from 381 in December, 1919, to 425 in March, 1920; while the average' rates of dividends for the past feiv months have ranged from 20.88 to 23.48 per cent. But the reversal of Japan's foreign trade balance and the sudden decline in national specie holdings caused bankers to tighten the purse-strings, and call money ran up to 3 sen (per yen, equal to 3 per cent.) per diem, and there was a slump in all markets. Not being able to command funds, a bank in Osaka failed, and several wev-'-ihg and other establishments had to close down, while many arc restricting operations, with the result that iurfi numbers of hands are thrown out of employment. Of course the panic naturally spread to the cotton market, where the situation was aggravated by cessation of demand abroad for Japanese cottons owing to inflation of prices. The Chinese boycott of Japanese goods further influenced the situation. Silk, riee, and other markets have shown violent fluctuations, , echoing the uncertainty of the economic situation. Sugar relieved the stress by dumping some 30,000 tons in America and Canada. The Government propose to throw some 200,000,000 yen on the market for the relief of the stock exchanges and exchange banks; but this, it is feared, will only tend to keep up abnormal prices as well as promote further speculation. It is said that nearly all the banks have loans outstanding.far beyond their deposits. It is only by the assistance of the Government that the economic situation has been steadied for the time being; but the future is not assured. Labor is restive under high prices, and any moment the industries of Japan might, be paralysed by strikes. The recent strike of the municipal tramway employees left Tokio without locomotion for four days—a terrible thing in a city of great distances, with no other means of transportation.