Twenty-five years ago, on November 24, 1997, Yamaichi Securities, which was one of the four major securities companies at the time, was forced to voluntarily close down.

This month saw a series of large-scale financial failures, plunging Japan into a serious financial crisis.

Since then, financial crises have recurred around the world, and now emerging countries' debts are swelling against the backdrop of interest rate hikes in the United States, and there is a growing sense of caution that this may lead to another crisis.

25 years ago "Dark November"

Twenty-five years ago, in November 1997, which was also called "Dark November," Sanyo Securities, Hokkaido Takushoku Bank, Yamaichi Securities, and Tokuyo City Bank went bankrupt one after another.

In October of the following year, the Long-Term Credit Bank of Japan (LTC) and the Nippon Credit Bank (Nippon Credit Bank) went bankrupt in December, and the Japanese financial system was temporarily nationalized. .

Japan's financial crisis finally subsided in 2003, but financial crises have recurred around the world since then, including the Lehman shock in 2008.

Currently, the debt of emerging and developing countries is swelling due to the large-scale fiscal stimulus implemented in response to the new coronavirus.

According to the Bank for International Settlements, the total debt of governments and companies in emerging countries as of the end of March this year was 82 trillion dollars, an increase of about 2.6 times compared to the end of December 2011.

Sri Lanka, an island country in the Indian Ocean, faced a shortage of foreign currency due to the failure of financial management and the impact of the new corona, and fell into a serious economic crisis.

While the U.S. and other countries are raising interest rates sharply to curb record-breaking inflation, if the outflow of funds from emerging countries and the increase in dollar-denominated debt due to the appreciation of the dollar accelerate further, new financial markets will emerge due to turmoil in the financial markets. There is a heightened sense of vigilance as it could lead to a crisis.

repeated financial crises

Twenty-five years ago, in November 1997, "Sanyo Securities" and "Hokkaido Takushoku Bank" went bankrupt, followed by "Yamaichi Securities," one of the four major securities companies at the time, being forced to voluntarily close down.

Since the bursting of the bubble economy, stock prices have plummeted and real estate prices have continued to fall, leaving financial institutions with huge amounts of non-performing loans.

Major banks fell into the red across the board, and in the following year, the Long-Term Credit Bank of Japan (LTC) and Nippon Credit Bank (Nippon Credit Bank) went bankrupt, shaking the Japanese financial system to its core.

The financial crisis also affected corporate cash flow and prolonged the stagnation of the Japanese economy. .

After the financial crisis of the 1990s, Japan prepared a regulatory framework to prevent financial crises, as well as specific measures and legal systems to stabilize the financial system in the event of a crisis. has subsided.

But financial crises are repeated.

In September 2008, a global financial crisis occurred triggered by the bankruptcy of Lehman Brothers, a major American securities company.

Due to the worsening of the housing market in the United States, housing loans for low-income people called subprime loans went bad, and securities companies and hedge funds that invested in related financial products recorded large losses.

The global financial market plunged into turmoil as the Lehman Brothers bankruptcy triggered a rapid decline in stock prices worldwide.

The impact spread quickly around the world, and even in Japan, the real growth rate of GDP = Gross Domestic Product in fiscal 2008 fell sharply to minus 3.6%.

US interest rate hikes may cause turmoil in global financial markets

When the United States raises interest rates, funds flow out of emerging countries, leading to currency crises and other cases of turmoil in the world's financial markets.

In the Mexican currency crisis that occurred in 1994, the Fed rapidly raised the policy interest rate from February of this year, causing funds to flow out of politically unstable Mexico.

As a result, Mexico's currency, the peso, plunged about 60% against the dollar at one point.

Mexico, which had difficulty repaying its dollar-denominated debt, received support from various countries and survived the crisis, but continued to experience rapid inflation and economic stagnation.

In 1997, when the Federal Reserve raised its policy interest rate, the Thai currency, the baht, plummeted in July, accelerating capital outflows and triggering an economic crisis.

The crisis spread to Indonesia, Malaysia, South Korea, and other countries, triggering the Asian currency crisis, which led to the Russian ruble crisis the following year, leading to global financial instability.

And the U.S. will continue to raise interest rates sharply.

While the dollar continues to appreciate in the foreign exchange market, the currencies of emerging countries have fallen sharply against the dollar.

It has been pointed out that rising dollar-denominated debt will increase the burden of repayment, and that it may hurt the economies of emerging countries. I was in crisis.

In response to this situation, the G20 = 20 major countries' finance ministers and central bank governors' meetings have pointed out that the trend of emerging economies will be a risk in the future, and a sense of caution is increasing.

Towards the convergence of the new corona response, warning bells from experts

On the 17th of this month, the IMF = International Monetary Fund and the University of Tokyo held a conference on the theme of crisis response in Tokyo.

During the financial crisis 25 years ago, Mr. Hiroshi Nakaso, chairman of the Daiwa Institute of Research, who responded to the crisis as the head of the Bank of Japan's Credit System Division and later served as vice president, and the former director of the Financial Services Agency, Nissei Basic Research. In addition to Tokoro Executive Fellow Ryozo Himino, financial experts from various countries, including the former governor of the central bank of India and a university professor from the United States, participated.

During this meeting, a discussion was held on the response to the crisis over the new coronavirus, and experts expressed the opinion that there was no other option for the large-scale monetary easing implemented by each country in response to the new coronavirus.

On the other hand, it was pointed out that the scale of the easing was excessive, and that attention should be paid to the fact that public debt is swelling mainly in emerging countries due to fiscal stimulus.

On top of that, as the phase of dealing with the new coronavirus is coming to an end, it is necessary to eliminate excessive expectations and moral hazards in the market, such as "the central bank should respond to the stability of the market." There were also voices warning that the continuation of monetary easing could lead to a financial crisis.

During the discussion, Mr. Nakaso said, "The next generation will probably have to manage and respond to the financial crisis. It is important to pass on the DNA of past crisis management to the next generation." and emphasized the importance of passing on the lessons of past financial crises.