ANALYSIS-Japan hard landing -- is it already here?
04:52 a.m. Sep 11, 1998 Eastern
By Linda Sieg
TOKYO, Sept 11 (Reuters) - Pessimists who fear Japan's battered economy is poised for a hard landing can stop worrying -- not because the worst can be avoided, but because it is already happening.
Not everyone agrees, but that is the view of a number of economists faced with fresh evidence that Japan's economy is deteriorating and that policy makers cannot halt the slide.
''The fact is, the policy response has taken so long to come forth and when it did come forth, it was particularly ill-chosen,'' said Chris Calderwood, chief economist at Jardine Fleming Securities. ''The private sector has been left to itself and is imploding.''
Data unveiled on Friday showed Japan's economy extended its losing streak for a third consecutive quarter in the April-June period, shrinking by 0.8 percent from the previous quarter, or 3.3 percent on an annualised basis.
It was the first time since 1955, when the government began collecting data the way it does now, that the economy had contracted three quarters in a row and economists fear that further declines are in store.
Even before the data was released, Tokyo share prices plunged on fresh fears of a global market meltdown that were triggered by a fall in New York stocks and fanned by Japan's domestic woes and by worries that U.S. President Bill Clinton may resign or face impeachment due to a sex scandal.
The stock market's main barometer, the 225-share Nikkei average, tumbled 5.11 per cent, or 749.05 points to close at 13,916.98 after posting its biggest loss for the year.
Some fear that sliding equity prices here and abroad could further weaken a Japanese economy battered by consumers' allergy to spending, by companies' reluctance to invest and by the danger of a deflationary spiral which feeds on itself.
The Bank of Japan fears that ''the stocks fall will have a very negative impact on business sentiment and eventually the real economy,'' said Susumu Kato, chief economist at Barclays Capital, referring to a warning in the central bank's monthly report about the possible blow from financial market turmoil.
Gross domestic product (GDP) data for the April-June quarter, meanwhile, provided fresh proof that government efforts to bolster the economy with public works spending have failed, as much of the money remains unspent, economists said.
''The big question is whether we are going to see a fourth negative quarter, because the stimulus doesn't seem to be working so far,'' said Peter Morgan, economist at HSBC Securities. ''Obviously, they (authorities) will claim that the stimulus is coming, just hold your breath. But I think the BOJ has given up and that's one reason they cut rates.''
The central bank on Wednesday said it was easing monetary policy for the first time in three years by guiding the overnight call rate -- at which banks lend to each other -- to 0.25 percent from previous levels of around 0.4 to 0.5 percent.
Economists said, however, that the BOJ's move would do little to help the real economy, boost banks' profits or persuade banks to loosen their tight lending stance.
The government has abandoned its tight fiscal stance and pledged to spend more in a ''15-month'' budget which will include an extra budget for the year to March 1999 and for 1999/2000.
But many fear the spending will be too little and too late.
Ruling and opposition parties, meanwhile, are still wrangling over how to clean up the nation's bad loan-laden banking system and whether and in what circumstances taxpayers' money should be used to recapitalise weak but viable banks.
Some economists say economic disaster can yet be averted if policy makers get their act together and take three vital steps -- more aggressive fiscal spending, a massive infusion of tax money to recapitalise the banking system and clean up bad loans, and a further easing of monetary policy.
''The solution is distressingly straightforward -- a banking bailout, fiscal stimulus and monetary easing,'' said Richard Jerram, chief economist at ING Barings.
Some also noted that a ''hard landing'' Japanese style, while involving a raft of corporate bankruptcies and a sharp jump in the jobless rate, would not come close to the economic turmoil now being suffered in, say, Russia or Indonesia.
Others, however, warned that a worst-case scenario in which Japan's woes trigger fresh global turmoil cannot be ruled out.
''The worst-case scenario is where the real economy keeps getting worse, politicians don't compromise, the banking system blows up...credit agencies downgrade Japan's sovereign debt, the yen falls to 200 (to the dollar) and Asia devalues,'' Jardine Fleming's Calderwood said.
''Is it more likely? It's probably more likely than a couple of days ago and the probability of a bad scenario is higher than analysts ever want to say,'' he added.
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