Nakayama Takuya flipped through the list in the report.
Many of the names were unfamiliar even to him as a transmigrator; they were ancient relics from the Showa-era arcades.
"The line of thinking is sound," Nakayama said, closing the document after reading a few pages. "Turn dead assets into living capital. However, add a clause to the licensing agreements: Sega reserves the right of first refusal for any finished products developed by third parties. Don't let a repeat of Nintendo licensing out Donkey Kong and ending up suffering for it happen again."
"The Legal Department is already drafting a standard contract," Hoshino noted, jotting it down in his memo pad.
After finishing the discussion on copyright reorganization, Hoshino closed his memo pad and prepared to head back to his office.
"Don't go yet," Nakayama called out to him.
Hoshino paused and sat back down.
"Last year, I had you pull people aside to keep an eye on the economic situation in Southeast Asia," Nakayama said, pushing the documents on his desk aside and resting his clasped hands on the surface. "Have you noticed any changes yet?"
Hoshino flipped to the back of his notebook, where he had recorded the various macroeconomic briefs he had been reviewing recently.
"The situation over there is tricky," Hoshino said, looking at his notes with a furrowed brow. "Thailand, Indonesia—these countries have maintained economic growth rates of over eight percent for years. On the surface, it's ridiculously prosperous. Some on Wall Street are calling them the new tigers of Asia."
He paused, then continued to explain his assessment.
"But looking at their data, I always feel like something is off. The volume of hot money flowing in and out is immense. The speed at which foreign capital is pouring in far exceeds the capacity of their real economies to absorb it. I can sense this anomaly, but I haven't quite pinpointed where the thread will unravel."
Takuya Nakayama leaned back in his chair.
"Foreign debt, trade deficits, real estate bubbles, political stability," Nakayama listed four terms.
These four words hit Hoshino's ears, leaving him momentarily stunned.
Hoshino was a veteran of the financial industry who had lived through the bursting of Japan's bubble economy.
After the Plaza Accord, the yen appreciated, hot money poured in, driving up stock and real estate markets, only for it all to come crashing down.
The memory of that disaster was etched deep into the bones of every Japanese financial professional.
Now, the four terms Nakayama had tossed out accurately struck the very source of that vague, unsettling feeling he had felt when reviewing the data.
Hoshino stood up. "Wait a moment. I'll go back to my office and get the latest macro briefing."
Less than ten minutes later, Hoshino returned with a thick stack of reports and intelligence summaries in his hands.
He spread the documents directly onto the coffee table in the office's reception area.
Takuya Nakayama walked over and sat down on the sofa.
"Let's look at Thailand first." Hoshino pulled out a report on exchange rates and trade data, pointing to one of the lines. "They have a fixed exchange rate system pegged to the U.S. dollar. A few years ago, when the dollar was weak, the baht depreciated along with it, and their exports reaped the benefits. But in recent years, the dollar has started to strengthen, forcing the baht to appreciate, which has slashed their export competitiveness."
Hoshino followed the data downward.
"This has led to a severe current account deficit. Last year, the deficit exceeded eight percent of their GDP.
The internationally recognized safety line is five percent. They crossed that line a long time ago."
Takuya Nakayama looked at the figures on the report. "Where does the money to cover the deficit come from?"
"Foreign debt." Hoshino pulled out another report on central bank data. "This is the first term you mentioned just now. To maintain the illusion of high-speed economic growth, Thailand relaxed capital controls. Domestic financial institutions borrowed large amounts of low-interest, short-term foreign currency loans from the international market and turned around to lend them out domestically at high interest rates to profit from the spread."
"A classic case of borrowing short and lending long," Takuya Nakayama remarked.
"Exactly," Hoshino said, his speaking pace quickening. "What's even more fatal is that this money never entered the manufacturing sector. It all flowed into real estate and the stock market. The office vacancy rate in Bangkok is alarmingly high, yet property prices keep climbing. Financial regulation is practically non-existent. This prosperity, without any real economy to support it, is a bubble just waiting to be pricked."
Hoshino pushed the documents on Thailand to the side and pulled out briefings on Indonesia, Malaysia, and the Philippines.
"The situation in these countries is identical," Hoshino said, laying out several charts side-by-side. "Their economic structures are highly homogeneous. They all started out relying on export-oriented growth and cheap labor, and now they are all pushing for financial liberalization and are all held hostage by hot money. Once the exchange rate defense line of one country is breached and international speculative capital moves in to short it, panic will spread rapidly. This is what a regional chain collapse looks like."
Takuya Nakayama looked at the data spread out on the coffee table.
Hoshino's analysis had touched upon the core of the problem.
This was the underlying logic of the Asian Financial Crisis.
The capital account had been opened too early, while the domestic financial system's ability to withstand risks was extremely poor.
Macro-control was missing, and exchange rate policies were rigid.
"What about the political situation?" Takuya Nakayama asked.
Hoshino took out several public intelligence briefings from the Ministry of Foreign Affairs.
"It's a complete mess." Hoshino handed the briefings to Takuya Nakayama. "The current Thai government is rife with infighting, with the coalition parties squabbling daily over interests. Not to mention Indonesia—family-style rule, rampant with corruption. If they were to face a massive run by international hedge funds, these governments have neither the unified decision-making power nor sufficient foreign exchange reserves to defend their national currencies."
Severe deficits, deformed foreign debt, high bubbles, political instability.
All the conditions were met.
Hoshino looked at Takuya Nakayama, his tone serious. "This is a crisis that will erupt sooner or later. It's just a matter of time."
"Look one layer deeper," Takuya Nakayama said, tapping the edge of the coffee table. "See who has been lending to these countries."
Hoshino immediately searched for the data on the distribution of creditor nations.
His gaze fixed on the page.
Japan.
"Japanese banks." Hoshino looked up. "They have issued massive amounts of loans in Southeast Asia. Seeking higher yields than what was available domestically, Japanese financial institutions have poured huge sums of capital into Thailand and Indonesia over the past few years. The Ministry of Finance has taken a tacit approach to this cross-border credit expansion."
"Once Southeast Asia collapses, companies and financial institutions in these countries will default," Takuya Nakayama finished the sentence. "The bad debt will flow back along the capital chain. This storm will not only destroy Southeast Asia, but also backfire on Japan's own financial system. Those regional banks, which already have high non-performing loan ratios, will bear the brunt of it."
Hoshino sat on the sofa, silent for a long time.
He had originally thought he was just looking for a short-selling opportunity to make money, but he hadn't expected to unearth a bombshell capable of shaking the entire Asian economic landscape.
"So, what we need to do is not just make a killing," Nakayama said, picking up his teacup for a sip. "We also need to fortify Sega's capital chain before the storm hits Japan. Businesses that are overly reliant on bank loans should be scaled back where necessary."
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