Wall St. crisis threatens Japan
Yoshikuni Sugiyama, The Daily Yomiuri, Asia News Network, Tokyo
In Japan, economists appear to be divided into two groups concerning their interpretation of a report issued by the U.S. Federal Reserve Board in June. Written by Fed staffers, "Preventing Deflation: Lessons from Japan's Experience in the 1990s," is a study of the bursting of Japan's economic bubble that also describes how monetary policy may be utilized to guide the economy to a soft landing, with the aim of preventing the bursting of the U.S. stock bubble.
Those economists and bureaucrats critical of the Bank of Japan's monetary policy have interpreted the report as indicating that the bursting of Japan's economic bubble was due to the central bank's failure to take "bold" easing measures. Such critics have utilized the U.S. study as powerful ammunition with which to attack the bank's handling of the economy.
However, another interpretation has focused on the threat of the bursting of the U.S. stock bubble. A researcher from a private sector think tank said: "The report indicates that the U.S. monetary authorities are very afraid of the bubble bursting. They're worried that the United States will suffer the same plight as Japan."
The researcher said the thinking of the U.S. authorities was dominated by the possibility of the U.S. bubble bursting. Concerning such a prospect, the researcher warned of the damage Japan would suffer if the nightmare of the U.S. authorities became a reality.
The number of those who have adopted the second interpretation has been growing in the wake of the recent plunge in prices of shares listed on the New York Stock Exchange.
An industry insider said glumly, "The latest plunge in stock prices has demonstrated that even (Fed Chairman Alan) Greenspan's magic couldn't prevent the collapse of the bubble."
Nobuo Yamaguchi, chairman of the Japan Chamber of Commerce and Industry, expressed apprehension last Monday about the effect the sudden plunge in U.S. stock prices would have on the Japanese economy.
Speaking at a news conference, Yamaguchi said: "The fall in stock prices is serious. It will have a major negative impact on banks in their disposal of bad loans."
Hiroshi Okuda, chairman of the Japan Business Federation, also expressed his concern Thursday that the Wall Street slump was a "serious crisis" for Japan.
While business leaders appeared apprehensive, government figures seemed less concerned. Heizo Takenaka, state minister in charge of economic, fiscal and IT policy, said he did not think falling U.S. share prices would have any serious effects on Japan.
However, the substantial drop in New York stock prices has brought a new dimension to Japan's economic situation, with the economy already suffering from deflationary pressures.
The latest development on Wall Street has rocked the Japanese government's rosy scenario of an economic recovery that was devised prior to the puncturing of the U.S. stock bubble. While the economy has bottomed out, there are fears that it could not only fail to recover, but also suffer a double-dip recession.
Nevertheless, Prime Minister Junichiro Koizumi has repeatedly said there is no "quick fix" for the ailing national economy.
It is a matter of concern that in Kasumigaseki -- the center of government -- the general consensus appears to be acceptance of the prime minister's stance.
A bureaucrat said the nation's "financial and monetary policies have reached their limits," warning that the problems would only be compounded if the government took further measures.
The official appeared to believe that the best policy for the government at present was to let matters take their course.
However, the government does not appear to have the luxury of taking this approach in view of the fact that the turbulent U.S. economy has changed the whole scenario. If the United States suffers an economic meltdown, there would be fierce deflationary pressure on both Japan and the global economy.
Under the circumstances, Koizumi must devise policies to combat deflation and prevent the economy from suffering the fallout from New York.