Japan's woes mean a fresh blow to Asia
Japan's woes mean a fresh blow to Asia
MANILA (Reuters): Japan's recession means it will take even
longer than expected for the rest of Asia to pull out of its
year-old financial crisis, the chief economist of the Manila-
based Asian Development Bank said yesterday.
"The picture is grimmer than we expected," Jungsoo Lee told
Reuters in an interview.
"I had said (before Japan's problems, there would be a
recovery) within two to three years. But I may now have to change
that to three to five years," he said.
"The big question is whether the Japanese economy can really
recover."
Latest figures show that by the end of March, Japan was
formally in recession, struggling with its worst economic slump
for 23 years.
Lee said Japan should stick to fiscal policies to revive its
sagging economy since monetary measures were unlikely to work in
the current "liquidity trap" where money does not circulate
properly.
"I think Japan is in a liquidity trap. So if interest rates
are lowered, the economy won't respond. Fiscal policy may be the
right approach," he said.
The problem is whether money released by tax cuts would go
into economy-boosting consumption or simply end up in savings
accounts, he added.
The plunge of the Japanese yen, currently near seven-year
lows, is especially worrying.
If it continued to fall too far, it could force a devaluation
of the Chinese yuan and trigger another disastrous round of
competitive currency devaluations in the region.
"I hope there is international collaboration to maintain the
yen at reasonable levels," he said.
If the yen stays below 150 to the dollar, China can cope but
if it falls to 160 or 170 then the pressure will be strong for
China to devalue the yuan, Lee said.
The yen is currently trading around 142 to the dollar.
"The continued depreciation of the yen will aggravate the
Asian situation and will not be good for the global economy."
U.S. Deputy Treasury Secretary Lawrence Summers is due in
Tokyo on Thursday but analysts doubt his talks will result in any
major agreement to help the tumbling Japanese currency.
Lee described prospects for the region as "grim," especially
in Southeast Asia where Indonesia, Thailand and Malaysia can all
expect negative growth in gross domestic product this year.
Singapore and Taiwan may do better than expected, but South
Korea's economy will contract while Hong Kong's GDP growth will
be lower than earlier expected.
Questions remain over how long countries can maintain the
tight fiscal policy and high interest rates which were meant as
temporary measures to keep on top of the crisis.
"There aren't so many alternatives. That's the big problem."
Separately officials at the ruling Liberal Democratic Party in
Tokyo have promised to take steps to make it easier for banks to
get bad loans off their books to an emergency session of
parliament after a July 12 election for Japan's Upper House.
The party has also begun debate on creating a "bridge bank" to
provide funds to healthy firms left in the lurch when financial
institutions fail.
Japanese Parliament's Upper House, meanwhile, yesterday
approved an extra budget to finance part of a massive stimulus
package unveiled in April, measures which Japanese officials have
insisted would get the economy growing again by autumn.
But worries persist that a pre-election policy vacuum will
delay progress on measures for the banking system, and while a
sense of crisis has mounted in Asia and elsewhere outside Japan,
many here seem oddly calm.