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.