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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: B Tate who wrote (6405)	9/14/1998 9:29:00 AM
From: Worswick	Respond to of 9980

For Private Use Only (C) WSJ Japan's Woes Continue as GDP Falls, Suggesting Vicious Economic Circle By BILL SPINDLE Staff Reporter of THE WALL STREET JOURNAL TOKYO -- Japan has fallen into its longest economic contraction in five decades, leading some economists and government officials to suggest that the country is closer to entering a vicious cycle of falling prices, falling employment and falling output that would ravage its economy even further. Economic activity fell 0.8% during the April-to-June quarter from the previous quarter, the government said Friday, an annualized decline of 3.3%. And with spending by companies and consumers plummeting, there was almost no sign the situation will improve soon. "The Japanese economy is walking along the edge of a deflationary spiral," said Taichi Sakaiya, head of the government Economic Planning Agency. Even before the gross domestic product numbers were released Friday, the benchmark Nikkei 225-Stock Average plunged more than 5% amid concern over the economy and the faltering U.S. stock market. The Japanese bond market touched another record high as yields, which move in the opposite direction of prices, plunged to 0.79% on the benchmark long bond. Despite the drop in the Nikkei, the dollar weakened almost five yen during the Asian trading day as investors, spooked by the volatility in global equity markets, bought the Japanese currency as a safe haven. More Bad News Japan's report on gross domestic product -- the total value of goods and services produced in the economy -- was a litany of problems that exceeded even the downbeat expectations of most private economists. Consumer spending, the largest chunk of Japan's economy, fell an annualized 3.3%. Housing investment, which provided one of the few bright spots in the preceding quarter, plunged by an annualized rate of 4%. And perhaps worst of all, corporate capital investment posted a second straight dismal performance, falling 20% at an annualized rate. This is a particularly bad omen, since business investment has historically been a key engine that drives employment and thus consumer spending. "That's brutal, and suggests the economy is going to be contracting" in the future, said Brian Rose, an economist with Warburg Dillon Read. While Japan's trade surplus made the biggest contribution to economic growth, even that silver lining was more a sign of economic weakness than strength. The surplus expanded only because Japan's imports -- which fell 6.8% compared with the previous quarter -- are collapsing far faster in the weak economy than exports, which fell 0.4%. The only clear plus for the economy was an annualized 1% rise in government expenditures, indicating some of the spending from a fiscal stimulus package may be trickling into the economy. Looking For Solutions The most recent data -- showing Japan's economy deteriorated for a third straight quarter, the longest contraction since the government began compiling figures in 1955 -- come as the government gropes for effective tools to turn the tide. On Wednesday, the central bank loosened monetary policy by slashing the interbank lending rate in half to 0.25% from 0.5%. But private economists and even some government officials said it would provide little help for an economy where the usual tools of monetary policy have broken down. The government is also pouring some $100 billion in tax cuts and spending into the economy, part of an economic rescue package passed in April. Still, private economists say the stimulus package -- the centerpiece of the dominant Liberal Democratic Party's economic strategy -- could easily be swamped by the deterioration in the rest of the economy. "When the honchos were drawing up the April package, they never would have imagined in their worst nightmares the economy would be shrinking this rapidly," said Chris Calderwood, an economist with Jardine Fleming Securities in Tokyo. "When the public-works money reaches the economy, it's going to be outmatched by the downward momentum of the private sector." Nonetheless, many economists still think the spending and tax-cut package will be enough to at least break the momentum of the contraction temporarily over the next two quarters. The fallout from the continued economic deterioration could also eventually hit the banking system. Already, the swelling number of bankruptcies is creating concern that banks' huge portfolios of bad loans will grow further as more borrowers fail. With the economy contracting and negotiations over how to deal with weak banks mired in politics, some investors are concerned that Japan could eventually face another banking crisis similar to the one that occurred a year ago. The failure of a major bank and a major broker last November started an alarming funding squeeze among all Japanese financial institutions as the number of overseas institutions willing to lend to them plummeted.

To: B Tate who wrote (6405)	9/14/1998 9:34:00 AM
From: Bosco	Read Replies (1) \| Respond to of 9980

G'day all - dear Bernie, you sez "... its over for the Mad Hatter." Let's hope that reasonable people will come to their senses. However, one should not underestimate MH's ruthless determination, considering he is a smart man who is willing to lead his country into the abyss. Interestingly, Malaysia followed Thailand into this unraveling. While Thailand has quietly nursed itself back to health, with the help of a fairly civil govt and a willingness to follow through with the IMF guideline, Malaysia is still knee deep in fractionalism. Obviously, most of the disinterested observers have seen through the MH's pretense from the beginning. While lives will go on without the feeling of deep recession, it is my belief that this isolationism will do substantive damage for a long time to come - especially in this age of globalization. best, Bosco