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To: Little Joe who wrote (23799)	12/3/1998 5:34:00 PM
From: Alex	Read Replies (1) \| Respond to of 116811

Savings time bomb that is ticking away under Japan <Picture> by RICHARD PLACER NOW THE financial markets have put their worries of banking crises and hedge fund collapses behind them, and with growing talk that the Asian economies have bottomed out, does another, yet subtler, danger lie ahead? Japan, apparently now turning the corner, has yet to address a time bomb in the financing of its debt that could scupper economic recovery and unleash a new bout of global market turmoil. Between 1990 and 1991, when Yasushi Mieno was governor of the Bank of Japan, longer-dated government bonds offered yields fluctuating between 6% and 8%, compared with 1% now. Some 100 trillion yen (£500 billion) of fixed-rate deposits at the Post Office, made during that period of relatively high interest rates, comes up for redemption from 2000. With longer-term Post Office deposit rates now about 0.2%, depositors are likely to look for higher returns elsewhere. The 100 trillion yen represents about 40% of Japanese Post Office savings, the largest savings pool in the world and vital to Japan's ability to control its long-term cost of borrowing. The redemptions could hardly come at a worse time as Japan's economic woes seriously reduce tax revenues and increase pressure on the government to spend, and so to issue further debt. Kiichi Miyazawa's Finance Ministry this week increased the size of its four-year bond issuance programme, announcing a surprise 200 billion yen rise in the amount on sale, to 900 billion yen. Concern over the state of the economy, and the government's ability to deal with the problem, was highlighted last month when credit rating agency Moody's downgraded Japan's Aaa credit rating, the highest available, to Aa1. That put it below that of the US, Britain and Germany, and on a par with Belgium and Singapore. Moody's noted that the government's efforts to spend its way out of recession had proved costly and ineffective, and drew attention to the country's growing indebtedness. Market participants seem relatively sanguine about the problem although the sharp 12-point sell-off of 20-year Japanese government bonds since the beginning of October is a growing concern. Japanese bond yields have defied gravity for so long that Western analysts in particular seem to have given up trying to predict more realistic - that is, much higher - yields. Until now, rates have been held artificially low by channelling Post Office and Trust Fund Bureau money into the bond market. If this money is no longer available, the price of Japanese bonds must fall, through a sharp move higher in yields or a dramatic weakening of the yen. The Japanese bond market has been one of the world's few consistently profitable markets over the past 12 months and the destabilising effects of sharp moves in bond prices or the yen would pose serious risks for Japan and the rest of the world. For Japanese banks, which are large holders of government debt, higher long-term yields would be a two-edged sword. Although a steeper yield curve would ultimately be positive for the banking sector, allowing it to borrow cheaply and lend at higher rates, the banks are in no shape to withstand losses on another asset class after suffering the negative effects of non-performing real estate loans for so long. The impact on European and US assets might initially be benign, as losses on Japanese bonds would detract from their appeal, encouraging Japanese investors to continue to invest overseas. Once Japanese yields moved substantially higher, however, reducing the relative attraction of foreign assets, funds would be likely to be repatriated, undermining the US dollar and threatening the financing of the ballooning US current account deficit. Although the bulk of Japanese redemptions will not take place until the year 2000, investors typically do not like to wait around for negative expectations to be fulfilled. Consequently, we may see a sharp back-up in yields well ahead of the millennium. The irony here is that the market implications of the year 2000 computer problems are already a focus of attention. The problem is that the millennium bug may come in a different guise than expected. © Associated Newspapers Ltd., 03 December 1998 This Is London <Picture: Go Back> thisislondon.co.uk

To: Little Joe who wrote (23799)	12/3/1998 5:51:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116811

Do not understand, how someone would want owerweight yen in reserves.. Japan Economy Shrinks Again Thursday, 3 December 1998 T O K Y O (AP) THE JAPANESE economy shrank for the fourth straight quarter, continuing to wallow dangerously in the nation's deepest recession in decades, the government said today. Japan's gross domestic product - the measure of all goods and services produced in the country - declined by 0.7 percent in the three months from July through September, compared to the previous quarter, the Economic Planning Agency said. The economy contracted at an annual rate of 2.6 percent, the agency said. If the trend continues, the economy will shrink for the second consecutive year - something the Japanese economy has not done since the end of World War II. The World Bank warned Wednesday that if the Japanese economy does not turn around soon, the world economy faces a substantial risk of plunging into recession next year, rather than undergoing sluggish growth. Japan has been battered by Asia's financial meltdown, which has slashed exports, long the mainstay of its economic growth. Tokyo-based economists surveyed by Dow Jones Newswires had forecast on average a 0.5 percent drop in GDP for the period from July through September from the prior quarter. The economy shrank by 0.7 percent for the April-June period, compared to the previous quarter. That marked the third straight quarter of decline and the worst record since the government began releasing GDP data in 1955. Initially, the EPA had reported that figure as 0.8 percent but revised it on Thursday. Earlier this year, the government revised its initial estimate of 1.9 percent growth for this fiscal year ending March 31 next year. It now says the economy will contract by 1.8 percent. Economic Planning Agency head Taichi Sakaiya reiterated today that what actually happens may be worse than that prediction. But he said the next quarter's results will likely not be as bad as today's figures. The economy shrank by 0.7 percent for the last fiscal year ending in March 1998, its first annual drop since 1974. Determined to prevent the recession from dragging on further, Japan last month announced a stimulus package including public works spending and income tax cuts. It is unclear when the effects of such measures will begin to be felt. The government has also passed a package of bills to bail out Japan's many troubled banks. The banks were left with massive loans gone sour leftover from the excessive lending and speculation of the 1980s. The ensuing credit crunch has sent unemployment and bankruptcies shooting to record highs. Consumer spending has been plummeting. In recent weeks, various Japanese government officials have made comments about some signs of an economic recovery.

To: Little Joe who wrote (23799)	12/3/1998 7:07:00 PM
From: goldsnow	Respond to of 116811

Who is really responsible for World crisis? Japan? Think again... World Bank attacks management of crisis By Joanne Gray, Washington The World Bank has attacked the IMF and the US Treasury, saying they exacerbated Asia's economic crisis by forcing crisis-hit Asian countries to lift interest rates to head off currency devaluations, which in turn led to devastating recessions. Without explicitly naming either institution, the bank's annual report, released yesterday, also blames financiers and investors for lending too freely to developing nations, and poorly supervised Asian financial sectors for fuelling the speculative investment boom. Still, the World Bank concedes that the chance of a world recession has receded in recent weeks with the fresh agreements on a new Japanese bank restructuring and fiscal stimulus packages, a $41 billion IMF package for Brazil, interest rate cuts in the US and Europe, and the Japanese-led assistance fund for Asia. If all goes well, strong growth in Europe and a likely soft landing in the US will help fuel the sluggish expansion. Japan and the East Asian crisis countries -- Thailand, the Philippines, Malaysia, Indonesia and Korea -- are expected to shift from deep recessions in 1998, when their economies will contracts by 8 per cent, to stabilisation in 1999, the report says. But the report pinpoints a series of remaining risks which are capable of setting off a domino effect that could tip the world economy into recession next year. In Japan, difficulties in implementing the restructuring package could cause domestic demand to contract, consumer and business confidence to collapse and exports to drop. A loss of consumer and business confidence in the US triggered by a collapse in stock prices "would set back growth severely in the US and Europe". "And Latin America would lapse into severe recession if capital flows experienced an extended shutdown," it warns. Growth in developing countries in 1999 is expected to more than halve, to 2 per cent from 4.8 in 1998, and the outlook remains "precarious", the bank says -- especially since the financing available to emerging markets has declined sharply since mid-August. In Latin America, growth rates will fall to 0.6 per cent in 1999 from 2.5 this year under the best-case scenario. Japan's economy will shrink by 2.5 per cent in 1998, and see a modest decline in 1999. Average US growth in 1999 is expected to slow to 2 per cent from around 3.5 this year. Presenting the report, the World Bank's chief economist and vice-president, Dr Joseph Stiglitz, said: "The heart of this current crisis is the surge of capital flows. The surge is followed by a precipitous flow out. Few countries, no matter how strong their financial institutions, could have withstood such a turnaround, but clearly the fact that the financial institutions were weak and their firms highly leveraged made these countries particularly vulnerable." Dr Stiglitz again criticised the policies of high rates and cuts in government spending imposed on Thailand, Indonesia and South Korea by the IMF as part of its rescue packages, to avoid devaluation and fund bank restructuring costs. "I am very much of the view that pain for its own sake is not a virtue, and that the pain [of high interest rates] doesn't restore confidence in an economy, and in fact leads to social and political unrest which weakens confidence in the economy when it goes beyond a certain point." The IMF's prescriptions caused severe recessions and led to mass unemployment. Small and medium-sized business and workers ended up bearing most of the costs of the crisis in Asia. In Thailand and Indonesia, 25 million people have been thrown into poverty by the crisis, the bank has estimated. afr.com.au