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Yen Slides After Finance Chief Says Japan's Economy Is 'Near Collapse'
By MICHAEL WILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
March 8, 2001
TOKYO -- Japan's finance minister surprised investors with a warning that the government's finances are "near a state of collapse," sparking a sharp decline in the yen.
Kiichi Miyazawa's comments this morning were just the latest in a recent series of statements by Japanese economic authorities that have prompted investors to sell the Japanese currency. Wednesday, Bank of Japan Governor Masaru Hayami and Mr. Miyazawa himself also made remarks suggesting that the government would accept a weakening of the currency.
"Our nation's fiscal situation is ... abnormal, somewhat near a state of collapse," Mr. Miyazawa told a session of the Japanese Parliament this morning. He said measures to cut the debt are necessary but blunted the warning by noting that doing so will take time, some 10 to 20 years, thus signaling that a contractionary cut in government spending isn't immediately in the cards.
The yen depreciated to a 20-month low after his comments, trading at 120.33 to the dollar Thursday morning in Tokyo, compared with 120.03 yen late Wednesday in New York, and 119 yen Wednesday in Tokyo.
Mr. Miyazawa was referring to Japan's exploding government-budget deficit. As of March 31 this year, Japan's total public debt will reach 666 trillion yen ($5.602 trillion), which significantly exceeds the nation's annual economic output. The debt is the biggest in the world in absolute terms, and Japan has the highest percentage of debt to gross domestic product, now approaching 129%, among major industrialized nations.
Many politicians and private analysts have warned about the debt burden, but the warning delivered a shock coming from the veteran finance minister, who has a reputation for being the steadiest and most prudent leader among Japan's otherwise weak leadership lineup.
Mr. Miyazawa's remarks come at a time of mounting concern over Japan's slowing economy and its weak banking system, which is showing renewed signs of severe strain. A weakening of the yen is one of the many measures being discussed as a way of relieving the pressure on Japan. A weaker yen, the reasoning goes, would make Japanese exports more price-competitive on world markets, boosting exports. It would also relieve the price deflation that is hammering the economy, by raising the price of imports in yen terms, thus helping to support overall prices in Japan.
The finance minister's warning also puts greater pressure on the Bank of Japan to take more radical measures to spur the economy, such as by boosting the quantity of money in circulation. Such credit-easing measures are being widely urged on Japan as an antideflation cure, on the theory that putting more money in the hands of consumers and companies will prompt them to ratchet up their spending.
On Monday, Japan will announce gross domestic product for the October-December period of 2000. Many analysts expect output to have contracted for a second straight quarter, putting Japan in recession by the popular yardstick of back-to-back quarterly contractions.
Separately, Taichi Sakaiya, a former economic planning minister who remains a special adviser to the Japanese prime minister, said a level of 120 yen to the dollar is good for Japan, but the government shouldn't let the yen fall as far as 130 yen to the dollar.
Mr. Sakaiya, speaking at a gathering at HSBC Securities (Japan) Ltd., said the 120-yen level is one that Japan "should permit" and added that 120 yen "is a pretty comfortable place."
Mr. Sakaiya noted that Japanese prices are falling rapidly, in part because of low-priced imports from China and other Asian countries. The lower yen level could help stem the price falls by making such imports more expensive.
However, Mr. Sakaiya said Japan "is getting close to the limit" of allowing a weak yen. "We should ensure that it doesn't get to 130 yen," he said.
The former minister noted two downsides to a weak yen. One is the possible impact on Asian countries that compete with Japan. "If combined with a recession, it will deliver a blow to Asian economies," he said. The other downside, Mr. Sakaiya said, is that an overly weak yen "will cause disappointment to foreigners who have invested in Japan." |
