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Japan trying to blame others for fiscal woes

By David DeRosa
BLOOMBERG, NEW CANAAN, CONNECTICUT
Thursday, Nov 01, 2001, Page 19

`If the obstacle to Japanese growth is deficient demand from America, what happened throughout the halcyon days of American prosperity in the 1990s?'

Bloomberg, New Canaan, Connecticut

All bets may be off on whether Japanese Prime Minister Junichiro Koizumi will keep his pledge to restrain government spending.

Koizumi had promised his government wouldn't sell more than 30 trillion of new bonds in its fiscal year that began April 1. On Monday, Finance Minister Masajuro Shiokawa issued a statement saying that, if the global economy heads into recession, Japan would need to "fulfill its responsibility" and increase fiscal spending.

Though Shiokawa stressed that he didn't see the need for such a move for the time being, the comment certainly seems like a trial balloon.

Shiokawa's timing is interesting because the next release of US output data will probably confirm that the American economy is in a recession. To have a global recession, Europe also would have to be in recession, something that is not true at present, though the outlook for the continent grows bleaker by the day.

What is bleaker than bleak is Japan's own outlook. Jobs numbers released on Tuesday show unemployment rose at its fastest pace in more than 34 years, to a record 5.3 percent in September, after 400,000 jobs were lost.

This week, the Bank of Japan forecast the economy will shrink as much as 1.2 percent in the fiscal year ending March 31 and by 1.1 percent the following year.

It is telling that when Economic and Fiscal Policy Minister Heizo Takenaka commented on the employment figures, the first thing he mentioned was the state of the US economy.

"I think the recovery in the US has been delayed by a year or so," he said.

For what it's worth, the BOJ sees the US economy recovering in the latter half of next year.

While I sincerely hope that this turns out to be true, the inference from Takenaka's remarks is that Japan's economy is a follower and not a leader.

It's a cute trick because it takes the Japanese government right out of the equation. Don't blame Japanese ministers -- blame America. By the way, if that's true, what's the use of having a minister of economic and fiscal policy? If the obstacle to Japanese growth is deficient demand from America, what happened throughout the halcyon days of American prosperity in the 1990s? When America was flourishing, Japan was languishing. The argument doesn't wash.

Shiokawa also has been talking about the yen, clearly concerned that any added strength of the currency would harm Japan's export industries.

Here the minister walks with his predecessors when he declares: "It's always necessary to judge whether the currency moves in line with the economy's fundamentals, and if the currency is moving in the wrong direction, it's necessary to take action." Excuse me, Mr. Minister. That is certainly a self-centered theory of exchange rates. It's as though Shiokawa thinks Japan alone influences the dollar-yen rate.

It takes two to tango in foreign exchange. The dollar-yen rate is as much a product of what is going on in the US as of events and circumstances in Japan.
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