It is not possible for an outsider to take in the size of the holes in the banks' balance sheets as a result of bad credit; it is probably not possible for the Japanese authorities to see this either. However, all of this must eventually rise to the surface, just as it did in Sweden during the finance crisis. It remains to be seen whether the new administration will bring problems in the finance sector closer to a solution. In Sweden we can of course be pleased that the stock exchange has made a slight recovery during April, although it is too early to conclude that the lowest level has been reached. The stock exchange tends to jump the gun a few times before it really takes off. There is still great uncertainty on the financial markets. At the same time, many of the recent signals regarding economic activity have been distinctly negative. A fall in the inflow of orders and weaker production growth are reported in the telecommunications and motor vehicle industries, for instance. Exports and investment are declining. 2  BIS Review 34/2001  Household sector consumption and expectations for the future are also showing a downturn. The number of newly registered vacancies on the labour market is giving negative indications, although employment is still rising. The inflation figures turned out to be higher than expected, both with regard to the consumer price index and underlying inflation.
If the substantial optimism regarding the future that is reflected, for instance, in the development in savings proves partially unwarranted, the problems may become even more difficult to handle at a later stage. Although the focus is on the USA at the moment, concern over developments in Japan has increased recently. Here there appear to be both severe problems in the real economy and in the finance sector, as well as political difficulties in dealing with these problems. In the insurance sector there are a number of major life insurance companies that are insolvent in the technical sense, as they have promised pensioners a return that they are unable to deliver. A large part of the insurance companies' assets are of course traditionally invested in low-yield treasury bonds. The Japanese 10-year bond rate is currently around one and one-third per cent. The Bank of Japan has declared that it intends to continue with its zero interest rate policy for the foreseeable future and the market expects to see prices falling rather than otherwise during the coming year. If interest rates and inflation were to gradually rise, which at the moment does not appear likely, this would of course further erode the value of Japanese pension money, as the bonds stock in the insurance companies would fall in value.