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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1001)	11/17/1998 10:37:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

Japan's Economic Stimulus Plan Inspires a Big Shrug November 17, 1998 NEWS ANALYSIS By SHERYL WuDUNN TOKYO -- Although the $195 billion economic stimulus plan announced by Japan Monday is the largest ever announced here, many investors yawned and shrugged. They have been disappointed in Japan so many times that they are hard to impress. Stocks rose modestly with the announcement. The benchmark Nikkei index of 225 shares ended at 14,428.27, up 160.06 points, or 1.12 percent. But many critics called the package misguided and shortsighted. Some contend that the answer to Japan's problems lies not in throwing money at them, but rather in undertaking structural changes to create more of a market economy. Other critics say that money might indeed solve the problems, but that the economy is sinking into such a big hole that it would take a huge stimulus effort just to return to the starting point. An important problem is that the government's credibility is as fragile as the economy. Officials have promised recovery so many times that no one knows whether to believe them this time. In any case the government finds itself having to outdo its previous record stimulus package, $137 billion in April, to demonstrate that Japan is going to buoy growth. The new package brings total spending on stimulus since 1992 to more than $800 billion. "It's a kind of treadmill," Peter Morgan, an economist at HSBC Securities Japan Ltd., said. "They keep moving the goal posts. They get locked into these large packages to just stay neutral." Prime Minister Keizo Obuchi's announcement Monday included a giant package of tax cuts, spending and lending. It is an ambitious grab bag of measures that includes $10 billion to promote housing investment, $8 billion to create one million jobs, another $8 billion to assist other Asian nations in crisis and $48 billion in financing to alleviate a nationwide credit squeeze. The underlying problem for Japan has been that corporate profits, consumption and corporate spending are all sliding, while unemployment is rising. The package may not appear large enough to turn around those problems. Despite the earlier package many economists are predicting an economic contraction of 2 percent for the year that ends on March 31. And notwithstanding the new plan, to be carried out in the next fiscal year, a number of economists are also expecting a small contraction then, too. Economists and executives also have other concerns about what the plan does not include. Some had hoped for a rollback in the 5 percent consumption tax. But the director of the Economic Planning Agency, Taichi Sakaiya, ruled that out for now. Other figures had hoped that the long-term tax cuts of more than 6 trillion yen, or $50 billion, would be put into effect immediately. But taxpayers may not feel the effects until they submit their tax returns for 1999. Moreover, some economists argue that money is not the only way to resolve the economic problems and that too much government spending may create a backlash. They say consumers may fear that the huge spending package will lead to bigger government deficits and tax increases. "The Japanese consumer is not confident about the future," said Hiroyuki Inoue, an economist at the Japan Center for Economic Research in Tokyo. This year, with tax revenues sliding because of the weaker economy and with the big spending packages and tax cuts, the budget deficit is ballooning to 10 percent of total economic output. That is the highest among the Group of 7 major industrial countries. It has some economists worried that Japan may be becoming fiscally negligent. The economists say the government has to devise a longer-term plan to strengthen its economy, so that when growth takes hold it will be sustainable. Sakaiya of the Economic Planning Agency did try to highlight the long-term characteristics of the plan, which he called the "road map" to the future. He suggested that much of the 8.1 trillion yen, or $66 billion, that is to be spent on public works would go to build a social infrastructure like optical fiber lines and a high-technology highway with electronic toll gates. But some economists were skeptical. "All these measures can increase domestic demand in the short term, but it's like giving a painkiller when the patient is crying for help," Teizo Taya, an economist at the Daiwa Institute of Research, said. "The right objective is to stimulate the kind of domestic demand that can be sustained from the long-run point of view. To that end we have to give the freedom of choice to the consumers." Copyright 1998 The New York Times Company