Bernard:
It would be nice to believe that Asia will "bounce back" and that demand for G* service will be lifted. However, the Asian financial crisis is not a mere "slump" or cycle as in recent memeory. Part of the trouble is the fact that a classic deflatioanry spiral has been set in motion, much like in the 1930's. Japan no longer has many options to stimulate demand with unemployment high: interest rates are at an all-time low. Fiscal stimuli have failed. Deficitary government spending would only depress the yen further. The final act in the play would be an increase in interest rates to protect the yen which would provoke an intense secular bear in Japan. Here are some quotes from today's news:
<<The Bank of Japan has warned that the country's employment and income situation is worsening and could depress the economy further. Unemployment is already at an all-time high. The Bank's governor, Masaru Hayami, said he and his board had been thinking about ways to ease monetary policy, which would stimulate economic demand.
But the bank does not have
many options to do so, as
the official discount rate is
already at a record low of
only 0.5%, and has not been
higher for three years.
Japan's economy is suffering
from sluggish demand.
A huge government stimulus package has not filtered
through to the public yet, and the bank's statement will
make Japanese consumers even more reluctant to
spend.
Mr Hayami, however, tried to calm market fears. He
blamed the yen's weakness, which is trading at an
eight-year low to the dollar, on uncertainty over Japan's
financial system, especially the bad loans burdening
many commercial banks.
The Bank of Japan's main concern is a fall in prices,
which could further threaten the economic outlook.
But Mr Hayami insisted that the country had not "fallen
into a deflationary spiral, where a fall in prices leads to a
worsening of corporate earnings and of the real
economy."
Depression ' looming'
The World Bank, meanwhile, has chimed in and says
that the whole of Asia could plunge into a deep and "very
long-lasting" depression.
Jean-Michel Severino, a senior World Bank official,
warned that a global economic slump could be just
months away. >>
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