The reaction of emergency authorities to the great earthquake and tsunami showed Japan at its best. The growing squabble over paying the bill, however, shows its institutions at their worst.
The Democratic Party of Japan, which took office less than two years ago vowing to confront “bureaucracy-led protectionism and conformity,” is in danger of flunking its first real test. After a long consultation with Japan Inc on how to settle claims arising from the nuclear crisis, the DPJ has emerged with a fudge. The state plans to issue special bonds to fund a new organisation to pay compensation. Then it will let Tokyo Electric Power repay that organisation over time. To keep lenders lending to Tepco throughout this long process, the government may buy preferred stock, while setting up another body to ensure the utility is run correctly. But rather than making haircuts on existing unsecured loans to Tepco an explicit condition of this support, the government is relying on vague moral suasion, urging “co-operation from every stakeholder”.
The picture is complex and the sums are vast. Sumitomo Mitsui Financial Group, which looks to be the most exposed of the big banks, has total Tepco debt and equity exposure approaching Y1,000bn, according to CreditSights. All the more need for clarity on basic principles, therefore, rather than this murky quasi-nationalisation. Markets do not know what to make of it: the daily volume of options on Tepco’s shares is little changed from the immediate aftermath of the tsunami. And the back-and-forth does no good to wider consumer confidence, officially at a two-year low, as Tepco’s 45m customers worry that they will be forced to subsidise creditors’ losses through much higher bills. Meanwhile, the DPJ’s long-standing pledge to represent “those who have been excluded by the structure of vested interests” is ringing hollow.