Japan must cure own economic ills to help Asia

Japan must cure own economic ills to help Asia

By Linda Sieg

TOKYO (Reuters): Japan has vowed yet again not to let its woes
drag the rest of Asia into more financial turmoil and trigger a
global crisis, but analysts say Tokyo must loosen its tight
fiscal grip still further to keep that promise.

"At the moment, Japan is the key to stabilizing the region and
I think they are beginning to get the message," said Russell
Jones, chief economist at Lehman Brothers Japan.

"Japan needs to stabilize its own economy and if it does that,
it contributes to solving the Asian crisis," he added. "They are
going to be under huge, huge pressure from the United States and
the European Union on this."

Hard-pressed Asian markets began the week with further share
price slides and currency falls as international negotiators
sought to avert an Indonesian debt moratorium, and last Friday's
plunge in U.S. share prices highlighted fears that Asian woes
would slice global growth.

The Tokyo stock market's key 225-share Nikkei average slid as
much as 2.44 percent before recouping some of those losses by
midday, when it was down 1.26 percent. But by late afternoon it
slipped again, and was down 1.84 percent at 14,719.88.

In Thailand, the baht dropped to a new low against the dollar
on regional woes, Hong Kong's Hang Seng stock index slid more
than nine percent in morning trade and Taiwan share prices fell
in tandem, although shares rose in Jakarta on hopes that talks
between Indonesia and the IMF could bring good results.

The United States and Europe, along with domestic business
leaders, are urging Japan to take bolder action to get its
faltering economy back on a recovery track and prevent it from
aggravating the economic turmoil in the rest of Asia.

"I think that Japan's economy affects not only Japan, but the
rest of the region and indirectly, the rest of the world,"
European Union Trade Commissioner Leon Brittan told Reuters on
Sunday ahead of yesterday's EU-Japan summit.

"On the macroeconomic side, the Japanese government has taken
some measures to reduce taxes and to stimulate the economy and
they will no doubt need to consider whether it is necessary to go
further in that direction," Brittan said. "That's something the
Japanese government will have to consider very carefully,"
Brittan said.

Prime Minister Ryutaro Hashimoto, who has made fiscal
austerity a key policy plank, surprised markets last month with a
decision to implement a two trillion yen ($15.1 billion) income
tax rebate.

Markets' hopes rose last week that Japan was poised to do more
after a ruling Liberal Democratic Party (LDP) executive,
Yoshihiro Mori, was quoted as saying Japan should consider making
the emergency tax rebate permanent and a Hashimoto aide
reportedly told U.S. officials that Japan would take more steps
if needed.

Yesterday, Hashimoto told a new session of parliament that he
would never let Japan trigger a global depression. He said in a
speech that there had been no change in Japan's need for fiscal
reform, but added that it must be flexible in adapting to
financial conditions and the international economic picture.

Private economists say Japan needs bolder corporate and
personal income tax cuts, prompt passage of financial
stabilisation measures and more drastic deregulation to prevent
Japan from adding to Asian woes and sparking a crisis.

"Japan is about one-fifth of the global economy so the
Japanese economy sliding into recession obviously has a direct
impact on global growth," said Jesper Koll, chief economist at
J.P. Morgan in Tokyo.

"The second concern is that Japan is the world's largest
supplier of savings, and if a banking crisis in Japan absorbs
those savings, that spells bad news for the globe," he said.

Pressure on Tokyo to act will mount ahead of a Group of Seven
(G7) finance ministers' meeting in London on Febr. 21.

"Definitely a major subject (of the G7 meeting) will be fixing
the Asian crisis, so Japan should take greater responsibility to
fix its problems, which have been caused by its fiscal policy at
home," said Susumu Kato, chief economist at BZW Securities Japan.
($1=132 yen)