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To: Ahda who wrote (29852)	3/13/1999 9:44:00 AM
From: Alex	Read Replies (1) \| Respond to of 116762

Cash didn't help Japan's recession Economy shrinks despite government relief March 13, 1999 BY MICHAEL ZIELENZIGER Free Press Foreign Correspondent TOKYO, Japan -- Although the government has poured billions of taxpayer funds into public works projects in hopes of stimulating growth, the Japanese economy shrank by another 0.8 percent during the last quarter, according to data released Friday. The 3.2-percent negative annual growth rate for the October-December quarter was much worse than analysts had predicted and cast doubts on the economic strategies of Prime Minister Keizo Obuchi. It also raised concerns that Asia's largest economy is far from achieving the kind of recovery needed to help revive other depressed East Asian economies. Japan's recession has delayed recovery in nations such as Thailand, South Korea and Indonesia, which depend on Japan for trade and investment. It also has caused profits to plummet, forcing companies to cut wages, jobs and capital investment. When the fiscal year ends March 31, most of the nation's best known firms, including Nissan Motors, Toshiba, Hitachi and NEC, will report losses. The fortunes of the world's second-largest economy also are important to the United States and to world financial markets, which rely on Japan's enormous pool of savings and investments. Japanese investors bought $14 billion worth of U.S. stocks and bonds other than Treasury securities in 1997, for example, and sank $3.4 billion into U.S. factories and real estate in the final quarter of 1998, the Commerce Department said. Such inflows of capital from Japan and other nations helped to cut long-term U.S. interest rates and buoy U.S. stock prices. Japan's woes also helped push down prices for goods from troubled economies throughout Asia, resulting in low import prices that helped keep U.S. inflation low. Despite such benefits, however, the Clinton administration, the Federal Reserve and leading private economists insist that the U.S. economy would be better off if Japan revives its own economy. "We cannot assume that the global economy will be able to fly permanently on a single engine," Lawrence Summers, deputy secretary of the Treasury, said this month. In the last year, the Japanese government has spent more than $800 billion to spark a revival in a nation burdened by too many unproductive factories and inefficient businesses, but it doesn't have the stomach to fire workers and shut plants. And in the last few weeks, growing optimism that Japan was on the mend sparked a modest rebound on the Tokyo stock exchange. The Nikkei index has risen 12 percent in the past eight trading days, including a 0.1-percent rise to 15,488.86 on Friday. But Friday's economic data, released after the market closed, showed that the government spending hasn't worked: Consumer spending fell 0.1 percent, capital investment plunged 5.7 percent and housing investment declined 7 percent. Only government spending rose, by a healthy 10.6 percent. Bottom line: The world's second-largest economy has been shrinking for 15 consecutive months, ever since former Prime Minister Ryutaro Hashimoto increased the national sales tax from 3 percent to 5 percent. In the year ended Dec. 31, the economy shrank 2.8 percent, the biggest drop since the government began keeping modern records in 1955. "The economic Band-Aids have not been terribly effective," said Peter Morgan, an economist at HSBC James Capel Securities. The danger is growing that Japan could enter a prolonged deflationary spiral. Major banks have cut interest rates for major customers to 0.25 percent, but few want to borrow. Land prices continue to fall. And every time a major company announces restructuring plans, consumers cut back on spending. "My salary's been cut 100,000 yen ($833) per month already," said one man Friday. "You think I'm spending more?" Government officials insisted Friday that prosperity is just around the corner. But others said Japan's government needs to deal with unproductive factories, debt-burdened companies and a highly regulated system that protects jobs by insulating inefficient companies. freep.com