The recent decline in global stock prices may fuel skittish investors' fears over a recession. But flamboyantly false disclosures on the Financial Service Agency (FSA) online EDINET system, and the Bank of Japan's failure to raise interest rates when it could, do little to inspire confidence in the ability of such state bodies to steer the nation clear of a brooding economic storm.
In January, scarcely-known Teramento Corp. falsely claimed on EDINET (Electronic Disclosure for Investors' Network) that it had acquired controlling shares in Sony Corp., Toyota Motor Corp., Astellas Pharma Inc., Nippon Telegraph and Telephone Corp., Mitsubishi Heavy Industries Ltd. and Fuji Television Network Inc. An investigation later revealed that the acquired-firms management company didn't even have the 20 trillion yen it said it had ponied up for controlling shares in six of Japan's top-tier firms - much less the brokerage account it claimed to have used, according to media reports.
Teramento has reportedly refused to rescind its claim despite lack of confirmation from any of the firms or the threat of hefty FSA fines and imprisonment. But even more significant is that the move shows just how vulnerable the online EDINET system is. It left the agency, which neither checks nor verifies such reports in advance, scrambling to form an ad hoc committee this month to determine how to prevent the reoccurrence of what it calls, "such ... false statements with respect to material matters," without undermining the essential timeliness of legitimate disclosures.
EDINET enables companies to comply with requirements to disclose such large-scale stock purchases in a timely manner by doing so online. In this case, the false disclosures were made after Tokyo trading closed on a Friday and were publicly debunked over the weekend with no apparent effect on the six companies. Had the report been posted during trading hours, however, the results might have been disastrous. It's not the only recent event showing the agency can be slow to act in investors' best interest.
In a first, the FSA also in January mandated that Nagoya Stock Exchange tighten up how it screens firms for listing on its Centrex market for start-ups. The agency determined that the bourse's lax enforcement of listing standards jeopardizes investor interests by allowing approved firms to skirt fully implementing their operational plans, according to The Asahi Shimbun. However, the mandate comes on the heels of a Securities and Exchange Surveillance Commission call for actual penalties after it deemed the situation worthy of investigations it began in 2006.
Such apparent lack of foresight in fiscal regulating, and its potential ill effects on investor confidence, extend well beyond stock markets to policy making for the larger economy. The U.S. Federal Reserve Board's unexpected 0.75-percent key-interest rate cut last month offered a brief reprieve to export-reliant firms as Japan stocks saw a short-term rebound. But it did little to assuage fears over the long-term affects of the overall global decline in stock prices and the precarious sliding of the U.S. and Japanese economies.
Fearing the U.S. rate cut will continue to strengthen the yen and hurt exports, Japanese firms anxiously look to the government and the Bank of Japan (BOJ) for favorable policy decisions as well as consumption in emerging markets. But here too, there is ample cause to bemoan missed opportunities, according to Eisuke Sakakibara, Waseda University professor and ex-vice finance minister renowned as "Mr. Yen" for his economic insights.
In a gloomy forecast, Sakakibara recently told The Japan Times there's a 50-percent chance of a U.S. recession that will take the global economy with it - including emerging China and India - and the U.S. dollar will slip below 100 yen by mid year. He blasted the Japanese government and the BOJ for not raising interest rates during better economic times, leaving no viable option for cutting them as a countermeasure to today's flagging economy, much less worse times that may lie ahead.