The Economic House of Cards

Jay Moore research at
Sun Mar 11 22:19:41 MST 2001

Japanese economic meltdown poses risks to global economy
WASHINGTON, March 11 (AFP) -

The already anemic Japanese economy is now in danger of further erosion and
economists warn that Tokyo's partners in Asia and elsewhere may not escape
the consequences.

'"The Japanese economy has been stagnant for a decade," said economist Rob
Scott of the Washington-based Economic Policy Institute, who added that
efforts by Japanese authorities to stop the rot through deficit spending
have been futile.

"If their economy collapses, it will certainly have a negative impact on the
region," he said, notably as Japan is the largest importer in Asia.

Its economic meltdown, he warned, would be a serious blow to regional
countries that depend on it as an export market and could trigger a new
financial crisis similar to that which paralyzed momentum in Thailand, South
Korea and Indonesia in 1997-1998 and ultimately affected Russia and Brazil.

"The Japanese economy is the second most important economy in the world" and
its collapse would have enormous consequences "both for the region and the
United States," said Sherman Katz, an economist with another Washington
think tank, the Center for Strategic and International Studies.

"Japan has been a great exporter of capital investment in China but also in
southeast Asia ... A decline in that investment is not good for the region
or for the United States."

"In the region such capital exports contribute to economic growth and
economic growth contributes to political stability."

In January International Monetary Fund Managing Director Horst Koehler also
highlighted the importance of Japan, noting that its recovery "albeit at a
moderate pace ... will still provide a stabilizing influence for the

Japan's coalition government on Friday adopted emergency measures aimed at
halting a further slide in the economy and called on the central bank to
ease its monetary policy. But with its benchmark lending rate at 0.25
percent the bank has limited room for maneuver.

"Policymakers have little leeway in stimulating domestic demand," explained
First Union economist Jay Bryson. "Economic activity will likely remain weak
until global growth strengthens."

Recession in Japan threatens the rest of the world -- and the United States
in particular -- with a painful interruption in the flow of Japanese
financial investment.

Given the parlous state of the US stock market and the US economy, according
to Scott of the Economic Policy Institute, "it's not clear that (Japanese)
investors will be willing to put their money here."

"Any sense that one of the three major anchors of the world economy is
getting into trouble could heighten fears that the United States could be
the next to fall," he added.

According to Sherman Katz of the Center for Strategic and International
Studies Japanese authorities have played a "major behind-the-scenes role in
keeping banks and companies afloat ... and people continue doing business in
the economy without regard to the real facts and the real credit risks."

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