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N° 196 |
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| December 2000 |
| Life Insurance: The Other
Dimension to Japan's Financial Crisis |
| Cyrille Lacu |
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| The long period of deflation
that followed the bursting of the financial bubble in 1990 has caught Japan's
life insurance in a double bind: on the one hand asset values are falling, while
on the other hand high returns to policy-holders are still being offered in an
effort to stave off a collapse of new policy subscriptions. A vicious circle of
insolvency then arises when liquidity constraints oblige these funds to liquidate
depreciated assets. Bankruptcies multiply. These institutions are at the heart
of Japan's economic model, but have now themselves become a source of uncertainty,
leading to deflationary pressures. Reforms have been undertaken since 1997, but
important changes remain to be made, if the sector is to be consolidated and the
past mistakes of the banking crisis not to be repeated.
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