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To: Abner Hosmer who wrote (10065)	4/19/1998 5:17:00 PM
From: goldsnow	Read Replies (2) \| Respond to of 116753

Tom, you are not along in re-evaluating Japan.. FUND VIEW-Japan badly misunderstood, Nomura says 09:54 p.m Apr 18, 1998 Eastern By Sarah Davison HONG KONG, April 19 (Reuters) - The rest of the world is beating up on Japan, but not Richard Koo. The high-profile Tokyo economist told an audience in Hong Kong last week that he was more optimistic about Japan now than at any time over the past decade. ''During the last four months there have been major changes in attitude among politicians, mass media, ordinary people,'' said Koo, Nomura Research Institute's chief economist. ''The policy changes since December have been very significant indeed.'' The latest economic stimulus package, valued at 16 trillion yen ($121 billion) and aimed at reviving a weakening economy, was an unprecedented step, he said. It represented a political acknowledgement that drastic action was necessary. Details were due for release this coming week, with government statements already confirming four trillion yen in tax cuts and 10 trillion yen in fresh spending. Although Koo preferred public works spending over tax cuts, he said the international community must wake up to the significance of these latest developments. ''I don't see any reason why we should be too pessimistic from this point onwards,'' he said. ''By late summer, early autumn, many of you may be pleasantly surprised (by Japan).'' The country has attempted to inject 10 trillion yen into the banks to deal with their bad loans. ''This is the beginning of major change in the Japanese financial system,'' he said. The measure has been criticised for rescuing irresponsible banks as well as those that have been relatively prudent. But Koo said the failure of Hokkaido Takushoku Bank late last year proved that Japanese banks were too weak to take up good assets from failed banks. If weak institutions were allowed to fail at this stage, they would drag the good down with the bad and could prompt contagious failures throughout Japan's economy. ''In a nationwide credit crunch, you have to think differently from other situations,'' he said. Only two trillion yen has been taken up by the banks, who feared the stigma associated with stepping forward to admit they needed assistance, but at least this was enough to stop the credit crunch from getting worse, Koo said. Other positive steps were an agreement by Japanese banks to report bad loans according to U.S. standards, and improvements in deposit insurance that would allow greater independence for the Ministry of Finance. But this was only the start. In order to sort out its bad bank problem, Japan must halt the slide in the yen, which is falling on fears about the state of the domestic economy. As the yen falls, Japanese bank capital adequacy ratios deteriorate. Koo said that each fall of one yen per U.S. dollar cuts Japanese bank capital by one trillion yen. This means that a depreciation of 10 yen cuts bank capital by the equivalent of two percent of gross domestic product, adding serious damage to Japan's fragile financial system. ''People who say the weak yen works to Japan's advantage are wrong, just dead wrong,'' Koo said. ''The weak yen destroys the banks, which destroys the Japanese economy ... The weak yen is killing Japan, and it's killing Asia.'' If the yen continued to fall to 140 against the U.S. dollar, as many analysts expect, the benefits to Asia from international financial assistance will evaporate, Koo said. Such a weak currency allows Japanese manufacturers to re-open idled factories at home, rather than relying on assembly plants throughout Asia. Japanese investment in Asia, already scarce, would dry up completely. But with the yen at 110 to the dollar, the benefits of investing in industrial capacity in Asia would re-emerge. ''In my view, a lot of what happened in Asia started out in Japan... The key factor had to do with the yen,'' he said, adding that over the past 10 years, the entire Asian economy had been built upon the assumption of a strong yen. ''If the yen had stayed at 110, the Asian crisis would never have happened, or it would have been a minor adjustment.'' -- Hong Kong Newsroom (852) 2843 6470 ^REUTERS@