Asset Markets and Assets Policy

Welfare Mix for Efficiency and Distributive Justice

Abstract

1. The proportion of the total value of national gross assets to national income has nearly tripled in the last two decades in Japan. The larger the proportion, the greater the influences of asset fluctuations on economic stability, allocation and distribution. The bubble economy in the 1980s and its collapse were caused mainly by the unexpected fluctuations in asset prices.
2. In contrast to the US and European countries that enjoyed the benefits of global liber-alization of asset markets, Japan and a few newly industrialized nations in Asia were seriously affected by depression in the same decade. The so-called global standards for financial and asset markets worked unfavourably for those countries that had little experiences and information with regard to the markets. Share prices in New York increased 400% in the 1990s, while on the Tokyo stock market, share prices in 2001 were 3050 % compared with their peak year. As a result of contrasting share price behaviour caused by global liberalization and free competition in asset markets, American investors were able to buy Japanese and Asian companies at unusually low prices.
3. Experiences in Asian countries in the 1990s suggest that when asymmetry in information and experiences between traders is obvious, liberalization of financial and assets markets sometimes causes cumulative economic fluctuations and unjust distribution of assets own-ership. Introducing the same global standards for competition on equal footings to nations at different stages of developing is sometimes unfair. In the transitional period when a system shift takes place in financial and asset markets, (1) asset allocation policies, (2) asset stabilization policies and (3) asset distribution policies are required.
4. Liberalization of asset markets is also likely to widen inequality in asset ownership within a country. In a period of system shift in asset markets, government policies for information sharing on asset markets and workers share ownership through mutual investment funds, etc. are effective means of mitigating inequalities in asset ownership and to promoting efficient asset allocation. In 2001, Japanese families held 1420 trillion yen as personal financial assets. Huge public and occupational pension funds amount to several hundred trillion yen. Most of these financial assets are owned as bank deposits, private insurances and bonds. Investment in company shares and mutual investment funds amount to only 4.3% and 2.3% respectively out of the 1420 trillion yen. If a larger portion of these financial assets shifted from deposits and bonds, etc. to stock markets as happened in the US and a few European countries in the 1990s, share prices would rise and the Japanese economy would begin to develop again.