ECONOMY-JAPAN: Public Bracing Itself for More Difficult Times Ahead

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Dec 20 2000 (IPS) - Minoru Sato, 52, a company employee, pulled out two deposits last month that he had started at a large life-insurance company in Japan ten years ago.

“I lost about 20 percent of what I had been paying for the insurance which I started as an investment to help me have a comfortable old age. But I do not regret my decision,” says the father of two.

Sato and his wife decided to pull the money out and invest instead in an overseas fund advertised by a newly set up American investment company.

He says the move is a result of his growing fears about the state of the Japanese economy which he predicts is only going to worsen in the next few years.

A weaker economy could pull the plug on several Japanese companies that could easily include the insurance company that he once thought would guarantee his future.

Sato’s gloomy outlook reflects the mood of the Japanese public today.

An official survey on business sentiment released by the Bank of Japan last Wednesday revealed a sharp drop – down 11 points to 30 in a scale of 60 in December from the earlier month, following a fall in stock market prices.

The pessimistic outlook comes despite a projected record earnings for fiscal 2000, ending March next year by major manufacturers – a 34 percent increase from the previous year – and the highest year-on-year forecast since 1988.

Aware of the urgency of the problem, Japan’s Finance Ministry submitted a draft budget for fiscal 2001, starting in April, spelling out the need to reduce the swelling public debt and improve the economy.

The budget will total 82.65 trillion yen (735.3 billion U.S. dollars), down 2.7 percent from the current budget and the first cut in six years.

But the government remains reluctant to cut public works spending, allotting 9.4 trillion yen for fiscal 2001, or same as the current year.

Economist Tomohiro Mizuno, points out that years of successive spending on public works has not pulled the Japanese economy out of the doldrums, and warns of an impending crisis in Japan in the coming year.

“What Japan lacks is a powerful and visionary leader who is not afraid to tackle hidden bank debts and slash the public deficit. As a result I see a political crisis, social upheaval, and public panic causing a financial crisis next year” he told a news conference last week.

Startling statistics from several leading economic institutions support Mizuno’s predictions.

Moody’s , a US ratings company, released a new survey two weeks ago giving the lowest rank, ” E” status, to most Japanese banks, excluding a few top institutions.

Most Japanese banks, according to Moody’s, are saddled with debt and might as well be declared bankrupt. In addition, Mizuno says even the major banks have or should receive more public funds in order to survive in the coming year.

Even the official Bank of Japan revised last week its growth forecast for 2001 to one percent compared to a 2.1 percent growth it forecast in October.

Mizuno explains that Japan’s Finance Ministry should have tackled the problem of bad loans much earlier.

He points to the fall of Japan’s mighty Yamaichi Securities in 1997 and the bankruptcy of the Long-Term Industrial Bank of Japan last year as leading signs that should have been heeded by the authorities.

“There is no doubt that the Finance Ministry is to blame for the stagnancy we face today. I forecast more bankruptcies, another downturn in the stock market and more political and social turmoil in 2001.

Dr Takero Doi, an economist at Keio University’s Faculty of Economics, contends the Japanese public will have to brace itself for higher taxes and rising unemployment in the coming year.

He explains that as the government moves to cut fiscal spending, it is possible that a higher consumption tax will be introduced to cope with a reduction in national spending.

In addition, he says, Japan’s elderly will be forking out more for their medical and nursing care, another step to shrink costs.

Analysts also do not expect much out of the government’s much touted investment in information technology development.

Yukiko Konishi, an analyst at Daichi Kangyo Reserach Institute, says the IT sector will record between 0.01 and 0.2 percent growth in Japan’s GDP mostly in the infrastructure area, with actual earnings still a long way ahead.

Beyond the domestic market, a negative growth in Japan is also expected to affect the recovery in East and South-east Asian countries.

Mitsuru Toida, leading economist at the Institute of Developing Economies, says Japan will not be able to increase imports from Asia and will also be taking a cautious stance in direct investment in those countries in the next year if Tokyo does not tackle its internal problems.