Prince Charles Visits Japan at Royally Bad Time: William Pesek

Commentary by William Pesek

Oct. 29 (Bloomberg) -- Prince Charles seems to like visiting Tokyo in times of crisis.

The heir to the British throne last visited in November 1990 as Japan's economic bubble was exploding. He's here again this week as the bursting of another bubble -- this one in global credit markets -- drags down the Asian nation's economy.

A coincidence, perhaps, yet the trip hasn't been without an economic dust-up of its own. Public scrutiny prompted Prince Charles and his wife, Camilla, to bring a smaller-than-usual entourage amid dimming growth prospects. In the spirit of thrift, he is paying for Camilla's return flight himself, as the duchess of Cornwall is heading back early.

Prince Charles and Camilla are meeting with Emperor Akihito and Empress Michiko, as well as Prince Naruhito and his wife, Masako. The British-educated Princess Masako is often referred to as Japan's Princess Diana, Prince Charles's first wife, on account of difficulties adjusting to life as a royal.

A little glamour goes a long way in Tokyo, and the media are eating it up with 24/7 coverage. In July, when Nicolas Sarkozy visited Japan, the headlines had less to do with anything the French president said than the absence of his fashion-icon bride, Carla Bruni. Reporters were as crushed then as they are excited now about Prince Charles's visit.

Too bad there isn't more focus on another group of princes with considerable sway over global affairs. The reference here is to the ``Princes of the Yen,'' which is what Richard Werner called BOJ officials in his 2003 book with the same title. It argued that Japan's central bank is concerned less with the economy than its own turf battles.

BOJ's Turn

One can only hope that is less so now. Masaaki Shirakawa, governor since April, so far has been a steady hand at a central bank with little global influence. The question now is whether Shirakawa will think more about the economy than his institution's standing and cut interest rates.

A key difference between Prince Charles's visit and the one almost 18 years ago is that the U.K. economy may be in worse shape than Japan's. Back then, Britain was enjoying the fruits of the deregulation policies of Prime Minister Margaret Thatcher. Now, the U.K. is cascading lower partly because of them.

Will Japan follow? Asia's biggest economy is highly dependent on U.S. growth and the yen's rally is spooking markets. This week, the Group of Seven nations put out a statement of concern about the currency's ``excessive volatility.''

G-7's Failure

Thanks to an amateurish mistake by Finance Minister Shoichi Nakagawa, it failed. Nakagawa said Japan requested the statement. Everyone knows Japan is obsessed with the yen's value. If traders thought G-7 members were equally concerned, they might care. Nakagawa's blunder blew the whole game and reminded us he has been in the job only a month.

It's also worth noting that the yen is strengthening because of forces beyond Japan's control. With Japan heading toward recession and a BOJ rate cut becoming inevitable, the yen should be sliding. It's surging because the euro is falling and investors are slashing bets on a weak yen.

With an overnight lending rate of 0.5 percent, the BOJ has little to cut. It would be more of a ring-the-gong exercise aimed at letting investors and consumers know the central bank gets the seriousness of global events.

What a difference a month makes. In September, a triumphal air flowed through Tokyo. The sense was that the U.S. is in trouble, Japan is stable and its cash-rich banks can be white knights for shaky overseas banks.

Sliding Pound

Things look very different following Mitsubishi UFJ Financial Group Inc.'s $9 billion investment in Morgan Stanley. Now Japan's biggest lender needs help of its own. Investors are miffed, fearing a planned 990 billion-yen ($10.6 billion) sale of stock will dilute shares. The credit crisis is closing in on Japan's financial industry, and fast.

While it's doubtful Prince Charles will be exchanging pounds at the currency-exchange window himself, the experience would be a shock. The pound is down 33 percent versus the yen this year. It has been a long time since Britons worried about how far their currency went overseas.

Prince Charles is visiting Japan at an intriguing time. Tokyo wants to be London in the years ahead. Japan has long seen the U.K. as a role model for its success in opening and regulating financial markets and adopting a favorable tax regime.

That was before we knew that the U.K. and U.S. economies were built on a house of cards. Deregulation went too far, leaving entire industries vulnerable to risky bets by investors. Now, instead of Japanese officials looking to the British for inspiration, U.K. officials should be looking at Tokyo.

Japan has perfected the muddle-along model from which other G-7 members can draw insights. At a time when Japan wants to be more like the U.K., G-7 members may be becoming more like Japan.

Many of the U.K.'s 61 million people, as well as princes, are in for a royally rough time as zero economic growth becomes the norm.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net