Japan Recovery?

Henry C.K. Liu hliu at mindspring.com
Thu Jun 10 15:54:50 PDT 1999


STORY: TOKYO has confounded economists, analysts and critics alike when the government announced that in the first three months of the year the economy had not only broken out of the deep shadows of recession but had roared into the sunshine of growth at an annualised rate of 7.9 per cent.

``The Japanese economy has finally started to beathe freely,''

said an obviously relieved Takahisa Shioya, Vice Minister of

the Economic Planning Agency when announcing that gross

domestic product had surged 1.9 per cent in the three months

to March, representing 7.9 per cent a year.

The reaction of the markets expecting a rise of the order of

0.2 per to 0.25 per cent at best was jubilant and the Nikkei

average and the yen both took off in harmony.

The news was timely too for Finance Minister Kiichi Miyazawa about to set off for Frankfurt to attend a meeting of the Group of Seven (G7) industrialised countries where he would have

faced calls similar to that issued by US Treasury Secretary

Robert Rubin for Japan to pull its weight and help boost the

global economy.

``The Japanese have had enough of being beaten up at the

G7 and are delivering what they have been asked,'' said Nick

Parsons, currency strategist at Paribas Capital Market,

referring both to the growth rate and to the intervention by the Bank of Japan to rein in the rise of the yen. ``It looks as if they

can go to this G7 and take holiday snaps.''

The international focus will now be on sluggish European

economies and on whether the US is going to raise interest

rates. Wall Street slid by almost 1 per cent, pulling European

shares lower, on the growing fears that the Federal Reserve

would announce hikes at its next meeting at the end of June.

``Everybody believes that there is a Fed increase out there,

and the worry is that it will be a 50 basis-point increase rather

than 25,'' said Gary Dugan global strategist at J P Morgan.

The one share that did well was Renault, which gained almost 10 per cent on the hope that it would benefit from Japanese

growth through its shareholding in Nissan, the second biggest

carmaker in Japan.

But in Tokyo, economists surprised by the high growth figure, also injected more than a pinch of scepticism about how real

the rise in growth was. Even Taichi Sakaiya, head of the EPA admitted that: ``It's too soon to take this and say that the

Japanese economy has recovered. We must cautiously

monitor economic conditions.''

Mr Miyazawa, who described the growth figure as ``the light at the end of the tunnel'', said it would not affect the debate on

whether the government must compile a supplementary

budget to keep the engines firing and fulfil the government's

hopes of 0.5 per cent growth for the fiscal year.

One question is how much the 1.9 per cent figure was due to

massive government infusions of money for public works over the past year and interest rates of near zero.

Some people have questioned the reliability of the figures,

pointing out that economies do not shrink 3 per cent one

quarter, then grow at 8 per cent the next.

Koichi Ono of Daiwa Research Institute said that it would still be expecting a lot to see consumer spending growing when

unemployment was on the rise _ which is why the government will announce plans today to create 700,000 new jobs and retrain 100,000 older workers to combat the record 4.8 per

cent unemployment rate or 3.26 million unemployed.

Many leading companies have announced big corporate

restructurings that have cheered the stock market but

depressed consumer confidence. The financial system is still

fragile.

On top of this, government debt has risen and gross public

debt is more than 105 per cent of GDP, leading economist

Rudi Dornbusch to declare that: ``Japanese bonds deserve a

junk rating.''

But the rest of the world, and particularly Asia, will have their growth held back as long as Japan is sluggish.



More information about the lbo-talk mailing list