Japan's economy licks self-inflicted wounds

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TOKYO, Dec 30 (AFP): Never mind the US subprime loan crisis, the main cause of Japan's lacklustre economic performance this year is entirely self-inflicted, according to analysts.
While investors are crying out for less red tape, efforts by Japan's government to protect consumers and homeowners have taken the wind out of the sails of Asia's largest economy even as global growth falters, they say.
The Japanese government recently slashed its growth forecast for the fiscal year to next March to 1.3 per cent from a previous target of 2.1 per cent, following in the footsteps of a host of independent forecasters.
One of the main reasons for the worse than expected performance this year is a slump in activity in the housing construction sector following the introduction of stricter earthquake resistance standards, analysts say.
Housing starts in Japan slumped for a fifth straight month in November, down 27 per cent from a year earlier, after falls of 35 per cent in October, 44.0 per cent in September and 43.3 per cent in August.
Japan tightened the building regulations in June after a Japanese architect caused a nationwide scandal by using fabricated data to build apartment blocks that could be vulnerable to collapse during even a moderate tremor.
Nearly 100 condominiums and hotels designed by the architect were found to have been built using false earthquake resistance data, shocking a nation that endures 20 per cent of the world's major tremors.
Following the introduction of the new rules, it now takes more than two months to obtain a construction permit, compared with three weeks previously.
"This is a typical Japanese reaction to a crisis," said Professor Noriko Hama, an economist at Doshisha Business School in the western city of Kyoto.
"A mea culpa kind of mentality drives people into changing everything totally in one go, without really thinking of the consequences, and with total disregard for the actual economic environment," she said.
The construction sector is not the only area of the economy to have been affected by new regulations.
In December 2006 the government introduced a new law to clamp down on consumer credit firms, drastically reducing the high interest rates they can charge borrowers.
The aim was to prevent poorer Japanese from suffocating under a mountain of debt, amid public concerns that the nation's income gap is widening.
But, according to local media, the move has forced some households desperate for cash to turn to the black market.
The growing web of red tape has also irked investors, adding to worries about the fallout from the US housing slump.
"Japanese policy decisions are based on political, not economic, rationality," according to Dresdner Kleinwort analyst Peter Tasker.
"'Safeguarding consumers' is always a popular line to take, even if it involves crushing economically important sectors such as consumer finance and house-building," he wrote in a recent research report.
With the consumer in mind, Japan's financial watchdog forced life insurance companies to scour their records dating back more than 30 years over the non-payment of benefits to policy holders who failed to submit claims when they were entitled to do so.
This colossal task took months and required the hiring of thousands of extra workers.
"The total cost for the insurance companies is calculated to be around two billion dollars," said Professor Ryuji Yasuda at Hitotsubashi University.
"Economically, it is a huge damage," he said, adding that the measures had also raised distrust of insurers among consumers.
"Now the policy holders view everybody as cheaters. It creates some very irresponsible activity of the consumer. In the US, unless you claim, you are not paid-it is your responsibility. But here, unfortunately, they are overprotecting the consumers," he said.