Japanese Economy in Terminal Decline October 28, 2001
Summary
The Sept. 11 attacks on the World Trade Center and Pentagon did more than just gut American confidence. They also heralded the downfall of the world's second-largest economy, Japan. About the only option left for the Japanese prime minister is to restart massive deficit spending.
Analysis
New statistics from Japan show that consumer prices dropped 1.2 percent in August, the 24th-straight month of decline. The data indicate Japan's deflationary spiral is intensifying. But Tokyo's problems are far more severe than economically crippling deflation.
About the only option left for Japanese Prime Minister Junichiro Koizumi to stop the economic degradation is to restart massive deficit spending, even though it may appear self-destructive, as soon as possible. Japan's economy has been extremely weak for more than a decade. But due to the Sept. 11 terrorist attacks in the United States, the country is now locked into an irreversible and terminal decline.
With its own people unwilling to spend, Japan is dependent on foreign consumers, particularly Americans, to sustain itself. To keep its exports flowing, Japan also repeatedly intervenes in the currency markets to keep the yen artificially low.
Such actions have made Japan hostage to international events. It has already completely tapped out monetary and stimulus policies as viable options. Now its federal debt, a nearly $6 trillion behemoth that makes America's 1980s debt seem small in comparison, is so high that industry-boosting tax cuts are no longer possible either. Adding to the misery, Japan's Nikkei-225 stock exchange is at an 18-year low, having shed 30 percent of its value in the past nine months.
The country's banks are helpless as well. Their capital adequacy ratio is estimated at a mere 1.4 percent, the Economist reports, following numerous bailout plans that required no one to take responsibility or truly write off losses. International banking rules require an 8 percent adequacy ratio.
The downturn still won't be fatal as long as foreign demand for Japanese goods remains high. Throughout the 1990s the United States, Japan's largest export market, was in the midst of its longest economic boom ever. The 2001 slowdown threatened Japan's precarious perch, but with the United States poised for recovery in the third quarter, there was a light at the end of the tunnel. Sept. 11 changed all that.
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Is this prognosis realistic? Dean Baker constantly writes in his EPR that Japan actually has many better economic indicators than any of the countries which followed the U.S. model of economic developement (actually, the US from what I heard didn't really follow the US Model...the US model is what the US forces down the throat of every country except itself):
Baker:"Japan's per capita GDP growth averaged 4.2 percent annually over the four decades from 1960 to 2000."
Baker: "In the case of Japan, per capita income grew at annual rate of 4.9 percent from 1960 to 1994"
Baker: "It is also worth noting, that while the U.S. is currently borrowing more than $1,500 per person per year from abroad, Japan is lending abroad at almost the same rate."
(Bryan: I was wondering, how does this relate to the Stratfor statement that "[Japan's] federal debt, a nearly $6 trillion behemoth that makes America's 1980s debt seem small in comparison..." These statements seem to be making opposite assumptions, but maybe I am missing something. Also, isn't debt as a portion of GDP more important than merely the flat number? Plus, there is always the question of what they are doing with the government spending...in Japan's case, from what I know, they need the government spending to stimulate the economy and raise consumer spending levels....getting money out of savings and into the economy?)
Baker: "The U.S. currently has a trade deficit that is close to $400 billion, or 4 percent of GDP. By contrast, Japan is running a trade surplus that is about 2 percent of its GDP."
(Bryan: It seems the difference then, is that while Japan has a (comparatively) large Federal debt, they have a large trade surplus, in comparison to the US which has a huge trade deficit and a so called balanced budget (which seems to be more about playing with the numbers and shifting things around to make it seem that it is balanced more than it is), but the US still has a federal debt").
Sorry for my ignorance and probably some mixed up definitions, but I would be interested in getting this all a bit more clear.
Best wishes to all,
Bryan Atinsky IMC-Israel English Editorial Coordinator http://www.indymedia.org.il -------------- next part -------------- An HTML attachment was scrubbed... URL: <../attachments/20011002/432399a4/attachment.htm>