Smile.....
... but this is really negative so maybe you shouldn't read it. It will ruin your day.
For private use only, Copyright New York Times
January 4, 1999
JAPAN
Bracing for Another Year of Reckoning, Amid Signs of Change
By STEPHANIE STROM
OKYO -- When economists and investment strategists in Japan talk about the country's prospects for this year, even those who classify themselves as optimists predict horrendous times ahead.
"This year will be the worst recession since the war," said Tadashi Nakamae, one of the nation's most respected economists. "The economic situation will be disastrous." Despite this bleak prognosis, Nakamae said, "I'm more optimistic for the future of Japan than I was a year ago -- really I am."
He and others base their visions on higher unemployment, record bankruptcy rates, declining capital investment and shrinking consumer spending. They say Japan's recession, its worst since the end of World War II, will deepen this year, forcing the government to bend to the will of the markets.
But there is one important caveat: They said the same thing last year.
"For years we've said things are getting worse and that they would be forced to accept change," said Ronald Bevacqua, an economist at Merrill Lynch in Tokyo. "It hasn't happened, and without some external jolt to make it happen, I don't think it will."
Nonetheless, there is an air of desperation in the government's latest efforts to spur growth, moves that critics say must be accompanied by an overhaul of the world's second-largest economy to be effective.
In all, the government has spent more than $800 billion over the last eight years in largely futile efforts to bolster the economy and has dropped interest rates to just above zero. Its latest package, in November, had nearly $200 billion worth of tax cuts, loans, investment projects and other economic stimulants to be introduced this year.
The government also plans to issue shopping vouchers in the spring in hopes of reversing the slide in consumer spending, a program even the most cash-strapped consumer regards as silly.
The central bank is keeping much of the nation afloat by buying commercial paper, and it may have to start buying corporate bonds because banks and investors are avoiding longer-term instruments.
Many financial analysts worry about Parliament's recent decision to order the Japan Development Bank, a government-backed lending institution whose original mandate was to help companies with capital investments, to bail out big corporations that cannot refinance their debts and have neither the cash flow nor the borrowing capacity to fully cover their expenses.
"The government has nine fingers in the holes in the bottom of the ship, and the 10th is about to plug another one," said Kathy Matsui, chief strategist at Goldman Sachs (Japan) Ltd.
Last month, the ruling party was plugging away again, floating a plan for the government to buy up 10 percent of the stock market in an effort to revive it.
The fancy finger work is aimed at ameliorating the symptoms of Japan's economic crisis rather than its causes, say many economists. The economy is still burdened by excess capacity, increasing levels of household debt, rising unemployment and severely constrained credit, and many analysts are wondering how sincere the government is about changing the nation's debt-laden financial system.
Despite this, Bevacqua is predicting a slight improvement in the gross domestic product, saying it will decline by 1.7 percent in the fiscal year that begins April 1, compared with a 2.2 percent decline in the current fiscal year.
Nakamae predicts that the gross domestic product will decline 5 percent this fiscal year, versus a 3 percent decline in the last fiscal year.
He expects corporate sales to fall an average of 10 percent this year, causing 90 percent of Japanese companies to lose money, compared with some 70 percent in 1998.
The government is less pessimistic, though its initial projections are regarded as little more than an attempt by the ruling party to advance its cause in wrangling over the budget for the next fiscal year. The Ministry of Trade and Industry predicts that the economy will grow at a real rate of 1 percent, though the Economic Planning Agency is more circumspect. It predicts growth of 0.5 percent next year -- and if past history is any guide, the agency will grow even less hopeful as the year progresses.
For Nakamae, the current gloom provides reason for cheer because it suggests a shift is afoot. "Japan is changing so rapidly," he said. "The conventional wisdom 12 months ago is no longer valid."
He points to the difficulty that bureaucrats leaving the Ministry of Finance and the Bank of Japan are having in finding jobs. In the past, corporations and banks kept cushy posts waiting for such officials in a time-honored process called amakudari, or the descent from heaven. Now those officials are lucky to find a position at a university.
Most companies are losing money, and profits are shrinking at those that are not. The decline in capital investment and the rising unemployment rate, trends that were once as alien to Japan as wearing shoes in the house, suggest that corporate Japan is embarking on a long-awaited restructuring.
Indeed, corporations like Hitachi and Toshiba have begun to cut costs and emphasize profitability rather than focus on expanding sales and market share, the traditional preoccupation of Japanese management.
Nissan Motor Co., one of the most visibly troubled of Japan's major companies, is working feverishly to pare down its balance sheet, selling its headquarters building and reducing its stakes in various affiliates not directly related to its core business of making autos.
In November, the Tokyu Department Store chain closed one of its stores in downtown Tokyo, the first time a major retailing company has moved in a definitive way to address the issue of overcapacity.
In the financial sector, both Sanwa Bank and Sumitomo Bank have taken steps to overhaul their extensive branch networks so that some branches specialize in retail banking and some in lending to small and midsize businesses, rather than offering soup-to-nuts service in all branches.
They and other banks have been grudgingly selling off properties and closing overseas branches in an effort to raise money and pare costs.
No company has announced major layoffs, but almost everyone here has at least one neighbor whose benefits have been reduced. And Hitachi, Toshiba and other corporations have announced work force reductions, to be achieved through attrition, that seem like a drop in the bucket compared with those announced recently by U.S. companies but that are significant in a country where lifetime employment is the norm.
"Unemployment is going to be one of the biggest catalysts behind change here, and it's picking up," Ms. Matsui of Goldman Sachs said.
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