I've posted before regarding Japan's woes and will add this to it. It is from tomorrow's WSJ and, again, I will say that their troubles are ours and they very well may bring our markets much lower. Trade smart.
October 2, 2001
Japan's Plunge Into Recession
Is Now Deeper Than Expected
By PETER LANDERS
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- Dismal results from an influential Bank of Japan survey of business sentiment suggest that Japan now faces an even broader and deeper recession than it expected before the Sept. 11 terrorist attacks in the U.S.
The central bank's survey shows that the so-called diffusion index for large manufacturers fell to minus 33 in the latest quarter from minus 16 three months ago. The survey asks businesspeople whether current conditions are good, bad, or so-so for them; the diffusion index measures the percentage saying "good" minus the percentage saying "bad," and then discards the so-so responses.
The results were slightly more bearish than economists had expected. The Bank of Japan said about 70% of companies responded after Sept. 11, suggesting that at least some companies probably factored in the expected slowdown in the U.S. when giving their answers. The survey, known as the tankan, is conducted every three months and takes place over several weeks. It asks respondents both about current business conditions as well as their outlook for the next three months.
One notable shift was weak sentiment in the car industry, which had remained fairly strong until recently thanks to strong demand in the U.S. for Japanese cars. The diffusion index for large companies in the auto industry fell to minus 2 from plus 2, and the number is projected to deteriorate to minus 14 three months from now. In another negative note, car sales in Japan fell 4.1% in September from a year earlier.
Even before the attacks, Japan was well on its way to its fourth recession in a decade. Most economists expect the economy to shrink in the current fiscal year ending March 31, and quite possibly next fiscal year as well. Signs of a recession in the U.S. suggest that Japan's recovery is likely to be delayed, economists say.
Amid the gloom, Prime Minister Junichiro Koizumi is sticking to his tight-budget policy. His ruling party's top coalition ally is calling for extra government spending to stimulate demand. But Mr. Koizumi told Parliament Monday that he wants to stick to his target of issuing no more than 30 trillion yen ($251.16 billion) in government bonds a year. "We shouldn't rely on irresponsible printing of government bonds," he said.
The prime minister also rejected calls for an immediate bailout of Japan's troubled banks, which many analysts say are at risk of insolvency due to a growing burden of nonperforming loans. While some people have suggested that the government should take over the bad loans from banks at face value, thereby giving them an injection of public funds, Mr. Koizumi said that the government should pay the market price if it buys the loans.
However, the market price for many bad loans is only a few cents on the dollar. If big banks sold their bad-loan portfolios at that price, most would face a shortage of capital or even bankruptcy, analysts say. Mr. Koizumi hasn't made clear how his government would respond to such a situation. |
