Japan Sinks Into Another Recession As Economy Shrinks 0.5% in Quarter
By PHRED DVORAK
Staff Reporter of THE WALL STREET JOURNAL
December 7, 2001
TOKYO -- As Japan slips officially into recession, plenty of signs suggest that the world's second-largest economy is entering one of its ugliest downturns since the end of World War II.
The government announced this morning that Japan's real gross domestic product shrank 0.5%, or an annualized 2.2%, between July and September, compared with the previous quarter. That puts Japan technically in a recession -- its fourth in a decade -- under the common definition of two straight quarterly contractions. The government also revised down the second quarter's contraction in GDP to 1.2% from 0.7%.
One surprisingly bright spot in the data was corporate capital investment, which rose 1.1% from the previous quarter. Yet that rise, which many economists say may be temporary, was countered by a 1.7% drop in personal consumption, a key engine of growth.
With economists, the central bank and even the government predicting economic contraction for this fiscal year, the big questions are: How hard will the economy fall this time? Will Japan, after a decade of slumps and slow growth, use this downturn as a spur to start fixing its problems? Or will this recession trigger the convulsion of the financial system that many observers have feared for years?
Merrill Lynch in Tokyo is forecasting a further four quarters of negative growth, while the conflicting response on the policy front has hardly been comforting. Friday morning, Japan's finance minister called the GDP data "better than expected," while the industry minister said it was more severe than expected. The economy minister, meanwhile, said the results were within expectations.
Japan watchers are troubled. "It's Our Lady of Perpetual Recession," said Stephen R. Blank, a former investment banker now with the U.S.'s Urban Land Institute, who has been coming to Japan to do deals since the last time the economy boomed, in the mid-1980s. "I'm almost at the point of saying: 'Guys, are you giving up on yourselves?' "
Most of Japan's economic indicators don't look good, and there are indications that the situation could be worse now than it was a few years back, when the nation's banking system tottered during the previous recession. Exports, which have been key in pulling Japan's economy out of the doldrums in the past, are shrinking fast as demand for goods falls in the U.S. and other big export markets. Corporate earnings are plummeting and could fall further, as accelerating price declines undermine profits.
The administration of Prime Minister Junichiro Koizumi is struggling to cut back on the massive government spending that propped up much economic growth over the past few years. And stock prices, often seen as good indicators of which way the economy is going, recently dipped to levels last seen in the 1980s.
Amid this slump, swaths of corporate Japan are watching their shares sink to prices unimaginable a few years ago. As of Thursday morning, for example, 149, or 10%, of the companies listed on the first section of the Tokyo Stock Exchange had share prices below 100 yen (81 cents), the level at which companies are seen to be in trouble in Japan, up from 104 on Sept. 11. Of that 10%, 39 were below 50 yen, according to research by Commerz Securities in Tokyo.
Japan's evident troubles have sparked a chorus of international voices giving advice on what to do to lessen the country's pain and spur growth again.
"I think the expansion of the money supply, by whatever means, is what is necessary," Kenneth Dam, deputy U.S. treasury secretary, said in an interview yesterday. Mr. Dam took pains to note that the U.S. isn't recommending Tokyo use any particular means of doing so. Many economists postulate that pumping more money into the economy will spur spending and halt deflation. But Mr. Dam, in Tokyo to meet Japanese officials, also said he feels the state of Japan's economy "warrants attention" but is not "going off the cliff."
The Organization for Economic Cooperation and Development prescribed even stronger medicine on Tuesday in its annual economic survey on Japan, saying Japan's central bank should consider buying foreign assets to fight deflation. That's a controversial step that could weaken the yen against the dollar, making Japanese exports more competitive overseas. The OECD also predicted Japan's economy will shrink 0.75% in 2001 and 1% in 2002.
To be sure, there are also signs that the widespread weakness is provoking the corporate restructuring and bad-debt cleanup long considered a prerequisite for economic recovery.
Aoki Corp., a struggling construction company that had already been bailed out once by its bankers, threw in the towel Thursday, seeking protection from its creditors with liabilities of 372.1 billion yen ($3 billion) as of Sept. 30. The company's failure could be the first of many such collapses and corporate restructurings to come over the next few months, as Japan's big banks seek to deal with some of their largest troubled customers.
Asahi Bank Ltd. and the Industrial Bank of Japan Ltd., Aoki's main lenders, said they have already set aside money to cover the losses on the loans they have out to Aoki. Like most of Japan's big lenders, they recently said they expect losses in the year to March 31, as they work to purge their balance sheets of bad debt. |
