Japanese reform 'crucial' to Asia, world economy

Japanese reform 'crucial' to Asia, world economy

HAMBURG (Reuters): The world economy could plunge into turmoil if Japan does not reform its economy and financial system to stem the tide of Asia's financial crisis, Singapore Senior Minister Lee Kuan Yew said in an interview in Germany.

"If Japan doesn't revive its economy, it could come to worldwide deflation," he said according to a pre-publication of an interview due to appear on Monday in newsweekly Der Spiegel.

"Then Tokyo would get its dollar bonds out of the United States. The crisis is still limited to Asia, but if Japan continues to fail to muster the political will to get its economy in order, the problems will spill over," said Lee.

In contrast, German Economics Minister Guenter Rexrodt said in separate interview that he did not think Japan's troubles could lead to an international spiral of deflation.

"At this point I see no danger of grave consequences for the world economy or for Germany in particular," Rexrodt told the Welt am Sonntag newspaper.

However, Rexrodt also said Japan is not moving fast enough to boost its economy in the wake of Asia's financial crisis.

Like Rexrodt, Lee said Asia needs Japan to lead a fundamental restructuring of its economic and industrial foundation.

"Japan must go forward with it," he said.

Lee, a former prime minister, added that China had been protected from the financial crisis so far because its currency is not fully convertible. But he warned that China will see greater competition from its neighbors.

"In a year, 18 months, it will be hard for Beijing. The Chinese are losing market share for low-wage production. Machines for shoes and textiles are being packed up and moved to Thailand or Indonesia," Lee said.