Japan and the Global economy.

[Henry C.K. Liu]

Japan has sought to boost aggregate demand through traditional Keynesian
measures.  The commitment to restructure the economy and to a competition
policy remain halfhearted. The decade-long recession continues.
The restructuring of the US economy has a one and a half decade jump on
the Japanese economy.
Money is growing in Japan, but credit is not, due to unresolved banking
system troubles.
Thus GDP growth falls despite solid money growth.  Depressed consumer
spending remains the major cause of Japanese recession.  A recent gimmick
in the form of time-sensitive vouchers failed to stimulate spending, as
job insecurity prevents spending in favor of savings.  Worse, Japan is
falling victim to capital spending recession. No one is expecting the
latest round of fiscal stimulus to revive sustainable growth in Japan.

The weak global economy is depressing EU exports and their economies,
which are entering a phase of deflation despite the last two years' G7
coordinated interest rate cuts.
In Early April, the European CB lowered its official lending rate from 3
to 2.5%.  England also lower rates last week.  As a result, the unweighted
average of short-term interest rates among the G7 is now around 3%,
compared to 11% at the start of the 90s.

Yet EU and Asian unemployment rates continue to climb.  The unweighted
average CPI inflation rate among the G7 fell from 5.5% at 1990 to near
negative in the latest data.  CBR, around 330 in 1997 (1967=100), is now
around the 250 range.
In the US, market capitalization growth between 1998-99 has mainly been
concentrated on five sectors: technology (73.8%), health care (26.9%),
consumer cyclicals (20.8%) and communication services (48.2%).  Energy
(-6.2) and basic material (-8.8%).  The rest registered anemic single
digits.  As Greenspan warned yesterday: how much longer can the
technological fantasy support the boom in consumer spending in the US?

Because equity and debt investors have become important sources of capital
than banks, global financial crises may be more quick to recover.  Capital
market forces put more intense pressure on borrowers to restructure
quickly than banks.  Yet this trend also means that the "recovery" may
well be as fickle as day-trading trends.
The data support impending global rebound as much as global recession.

Henry C.K. Liu