I like this one:
"The new US administration has said it wants Japan to be the England of the Far East in terms of its national security relationship," says David Asher, a Japan expert at the American Enterprise Institute. "The problem is they have to make sure Japan doesn't first become the England of 1976 - on the edge of financial collapse."
And, bailing the banks out of part of their stock - this might account for the Nikkei turnaround:
Also, the fear is not that Japanese investors will pull their money out of US T Bonds, but that another wave of surplus Japanese capital will flood world financial markets.
There is also the specter of a downward spiral of "competitive devaluations", just like in the good old days. The falling yen could not only pull down other Asian currencies (as in 1997) but this time also the US dollar, at some point. ---------------------------------------------------------------------------------------------------------
FRONT PAGE - FIRST SECTION: Fed chief says Japan is harming world economy
Financial Times, Apr 5, 2001 By EDWARD ALDEN and GERARD BAKER
Alan Greenspan, chairman of the US Federal Reserve, warned yesterday that the continued stagnation of the Japanese economy had significantly dampened global economic growth.
"You cannot have the second largest economy in the world essentially stagnating without impacting the rest of us," he told the Senate finance committee.
The comments were a further signal of growing concerns in the US over the threat Japan's weak economy poses to the world and the US. They come amid fresh uncertainty about the prospects for a Japanese financial and economic reform package.
The main concern among officials in Washington seems to be that a failure to implement reform will result in a further loss of confidence in the Japanese banking system, with potentially turbulent effects on global capital markets.
Mr Greenspan's remarks came hours after plans for Japan's latest emergency economic package descended into chaos when last-minute disagreements among politicians forced a delay. The package would have set up a government-backed fund to purchase up to Y11,000bn (Pounds 62bn) of shares owned by banks.
The 11th-hour withdrawal added to the perception that the government - which faces criticism for its handling of the economy and is mid-way through replacing the prime minister - lacks focus anddirection.
Paul O'Neill, the US Treasury secretary, last week said Japanese banks needed to mark down the value of their assets to the real carrying value. He also called on the Japanese government to open up the economy to world prices.
With the US experiencing its most serious slowdown in a decade, there is nervousness about the outlook for the global economy and the ability of smaller Asian economies to continue to recover from the financial crisis of three years ago.
US officials are also concerned about the effect of Japanese weakness on the exchange rate. The yen hit a new 30-month low of Y126 this week, and though there has been no expression so far of US displeasure at the continuing appreciation of the dollar against the Japanese currency, the yen's weakness is casting a further shadow on America's economic prospects.
Mr Greenspan said Japan had moved during the past decade from being a major engine of global growth into a source of stagnation that "has created a significant element of dampening in world economic activity and in world economic trade".
While Mr Greenspan reiterated that the US escaped relatively unscathed from the Asian crisis of 1997-98, he said the continued weakness in some Asian countries was having a larger impact on the economy this time. ---------------------------------------------------------------------------------------------------------- THE AMERICAS: Japan's ills force new approach by Washington: The Bush administration is offering friendly but increasingly urgent guidance to restore the country's economy
Financial Times, Apr 5, 2001 By GERARD BAKER
When they took office in January the top economic policymakers in the administration of George W. Bush made clear that their main priority on the international front would be a change of strategy towards Japan.
They decried the didactic, often hectoring approach favoured by Larry Summers, Bill Clinton's treasury secretary, and his subordinates, who never flinched from telling the Japanese government exactly where it was going wrong.
"Look at what happened. Japan has done everything they wanted, right?" Paul O'Neill, the treasury secretary, inquired ironically in a Financial Times interview in January.
But 10 weeks later, as Japan teeters once again on the brink of what many fear is a full-blown economic crisis, the tone has changed.
Last week Mr O'Neill expressed growing concern at the state of the Japanese economy and handed out his own clear advice on what Tokyo should do to resolve its financial mess and at last eliminate the crippling burden of non-performing assets on financial institutions' balance sheets.
"There are two things that they need to do. One - write their asset base down to its real carrying value, that is to say the value that can be supported by ongoing earnings; the other thing is open up their economy to world prices," he told a conference in Washington.
This new approach to Japan - friendly but increasingly urgent guidance - reflects growing concern in the administration and the Federal Reserve about the health of the Japanese economy and the threat it poses to the US and world economy.
Though the world's second largest economy has been in a state of more or less continuous slump for at least five years, punctuated by moments of genuine crisis, there are good reasons to believe, officials say, that the current difficulties - intensifying deflation and deepening problems of non-performing assets in the financial system, compounded by weak political leadership - may prove the most challenging yet for the rest of the world
"The new US administration has said it wants Japan to be the England of the Far East in terms of its national security relationship," says David Asher, a Japan expert at the American Enterprise Institute. "The problem is they have to make sure Japan doesn't first become the England of 1976 - on the edge of financial collapse."
Japan has been propelled to the top of the US agenda now by America's own weakness. In the past Japan's problems were important but not central - now, with US growth faltering, the risks are much greater.
Financial concerns predominate. With growing doubts about the solvency of many large Japanese financial institutions, US banks have been quietly examining the tension in their credit lines in case of a sudden default.
And while fears of a crisis producing capital repatriation by Japanese institutions are still around, they have been largely eclipsed by fears of the opposite - a sudden outflow of funds from Japan that could cause real instability in world markets.
What might precipitate a crisis? Since the Bank of Japan acted last month to pump liquidity into the Japanese economy, the biggest concern among US officials seems to have shifted to politics. There is a general belief that reform proposals along the lines of those proposed by Hakuo Yanagisawa, the head of the Financial Services Agency, for radical restructuring of the financial system are the best option.
But there are US concerns that the leadership problems of the Liberal Democratic party with the departure of Yoshiro Mori as prime minister may weaken the resolve for reform. That is why attention has been turning to what the US might do in addition to offering helpful advice.
The only practical solution in which the US can play any role seems to be the currency. If the US agreed to let the yen fall it would help both the broader Japanese economy by promoting export-led growth and the financial system, since it would raise the value of net foreign assets on banks' balance sheets.
There has been much discussion about the yen in Washington in the last two weeks.
A Japanese official was quoted last week as saying that the US had agreed to let the Japanese currency depreciate further - at yesterday's Y126 to the dollar it has already dropped by more than 10 per cent this year. But there are risks to this strategy for the US.
First, a falling yen might be good for Japan but it could be troublesome for the rest of Asia.
"Japan is a deflationary force we don't need in the world right now. It's already exporting its own deflation to the rest of Asia and that could intensify and spread," says John Makin, an economist and writer on Japan with Caxton Associates, a US consulting firm.
Second, it causes policy complications in Washington. The Federal Reserve is trying to stimulate the pallid US economy through sharp interest rate cuts.
But the effect of those cuts has been mitigated so far by the continuing strength of the dollar - further falls in the yen would make the Fed's task even harder.
On top of all this is the risk of a political backlash at home if the yen falls too far. Three years ago the dollar rose to the dizzy heights of Y170 but the response from embattled exporters at home was muted because US growth was so strong there was plenty of domestic demand to take up the slack. That will not be case if the yen falls much further this time.
The new US administration clearly sees the need to help Japan - and has so far acquiesced in a gradual slide in the yen's value in the hope that will do the trick. But if it does not, further US assistance will be both more essential and much harder to deliver. ------------------------------------------------------------------------------------------------------------