More on Japan ...
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GODZILLA CRUNCHES JAPAN!!
by Grant's Investor Staff 07:00 AM 07|06|2001
Whatever became of the world's second-largest economy? As Japan's economy sinks further, questions arise as to whether the new prime minister has answers for long-term recovery.
The long-suffering Japanese must feel as if they're trapped in a never-ending rerun of the 1954 Japanese sci-fi classic "Godzilla" or its many sequels. But instead of "Son of Godzilla" or "Godzilla vs. Mothra," the latest horror show should be titled "Godzilla Swallows the Economy." The economic news coming out of the Pacific island nation is downright scary. Everything appears to be sinking, from employment to industrial production to government bond yields and -- little wonder -- small-business sentiment. What's more, International Strategy & Investment (ISI) Group eyewitness Nancy Lazar, just returned from Tokyo, fears that the much-heralded reforms of new Prime Minister Junichiro Koizumi "are Hooverish, not Reaganesque," and could put "Japan at risk of a severe recession that has no safety net."
The bleak statistics flowing from Japan (and provided by ISI) include: May's 0.3% decline in employment, to its lowest level in 10 years; industrial production plunging at an estimated 14.1% annual rate in the second quarter; small business sentiment sliding to its second-lowest point ever; Tokyo core CPI down 0.5% in June to a five-year low; a drop in the corporate service price index in May to its lowest level in 11 years; five-year government bond yields at an astonishing 0.37%! We could go on, but, suffice to say, none of it would be encouraging.
As for the mood in Tokyo, Lazar reports that "the city looks fine [and] busy," and many people seem unperturbed by the deluge of gloom and doom. Apparently, the local perception is that the Japanese people are "still rich" and that economic activity is relatively healthy. But Lazar believes such confidence is actually a negative, because it is "fostering complacency," when, in point of fact, "the economy is struggling and deflation continues, from real estate to hotels to cabs to clothes. Banks still have way too many bad loans," she points out. "Companies still need to restructure (i.e., layoffs). Tech spending is weakening (e.g., everyone already has a cell phone)."
Lazar's assessment of the "Koizumi Revolution" is perhaps the most troubling aspect of the Japanese predicament. For years, analysts and investors have cried out for Japanese political and economic reform. "No pain, no gain" pretty much summed up the advice coming from Japan's many critics. But now that Koizumi appears to have convinced the nation to bite the bullet of reduced government spending, bad-loan write-offs and increased unemployment in order to finally turn around an economy that has been stagnating for more than a decade, it seems the Prime Minister has solved only half the equation. In other words, he's got the "pain" part all planned out, but, as of now, his program doesn't contain the necessary stimulus.
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