INTERVIEW-Japan needs inflationary boost ahead of reforms
02:28 a.m. May 29, 1998 Eastern
By Risa Maeda
TOKYO, May 29 (Reuters) - Japan's economy risks a crisis threatening top
corporations if it does not introduce inflationary policies ahead of
planned structural reforms, a respected Japanese currency dealer said
Friday.
''Japan should buy time by giving an inflationary boost to the economy
-- weakening the currency and raising liquidity in the money market --
to keep the planned reforms going,'' said Takeshi Fujimaki, Tokyo branch
manager of Morgan Guaranty Trust.
Fujimaki said in an interview with Reuters there was a risk people might
enjoy the economic spurt and forget about the need for reforms, but
added: ''Despite such danger, I'm worried about how Japan and the world
will be affected without inflationary measures.''
Japan faces a crisis of heavier magnitude than last November, when a
liquidity shortage helped topple several major corporations including
Yamaichi Securities, he said.
''It will be a big crisis bringing extremely high unemployment,''
Fujimaki said.
Japan currently faces its most severe job situation in decades, with
government data announced on Friday showing unemployment hit a record
4.1 percent in April, up from 3.9 percent in the previous month.
Fujimaki said the situation in Japan threatens neighbouring nations
whose economies largely depend on the Japanese economy.
''A weaker yen is not a problem in Asia. Japan's inability to expand
domestic demand is the problem,'' Fujimaki said.
Imports from crisis-hit Asia did not increase significantly in the past
year despite a fall in regional currencies against the yen that made
their products far more competitive.
A top priority for Japan right now is to get rid of deflationary
pressure on prices, Fujimaki said.
He said spurring inflation would lighten the burden of ballooning
liabilities by weighing on asset prices.
He said this could aid domestic investors ranging from the government to
individuals whose balance sheets were hurt by the collapse of asset
prices after Japan's late-1980s bubble era.
A weaker yen also would make Japanese assets attractive for foreign
investors and an expectation of rising prices would induce consumers to
loosen purse strings, he added.
Fujimaki said Japan needs to take immediate measures since its
much-touted ''Big Bang'' and other tax and economic reforms, designed to
liberalise its markets, would take years to take effect.
He said that even the government's 16 trillion yen ($115 billion)
economic stimulus package announced in late April may not work since the
Bank of Japan has appeared unwilling to take radical steps needed, such
as considering negative interest rates.
Japan's monetary authorities have also refused to let the yen weaken,
Fujimaki said, adding that without central bank intervention the yen
could fall to 160-180 to the dollar by the end of 1998.
Though a stronger dollar could stir trade friction with the United
States as the U.S. bilateral trade deficit balloons, Fujimaki said the
risks at stake are even larger.
''The trade imbalance is now a minor issue in the rest of the world.
People are concerned if Japan or Asia may trigger a world depression,''
Fujimaki said.
He said Japan's inconsistent policies mean the latest stimulus package
is unlikely to reproduce the economic boost that followed a 15.25
trillion yen package in February 1994.
That package gave Japan its last period of healthy growth in the 1994/95
fiscal year but was spurred by a weakened yen and the Bank of Japan's
cut in its official discount rate to 1.75 percent from 2.5 percent in
September 1993, Fujimaki said.
The discount rate has been pegged at a record low 0.5 percent since
September 1995.
($1-139 yen)
((Tokyo Treasury Desk, +81-3 3432 8570 |
