Mon, Oct 22, 2001 page17

• Japan's leader may drive reform

  • THE OBSERVER
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  If Japan is in recession, somebody forgot to tell the people of Tokyo. In the fashionable district of Shibuya, where platform-heeled Panda Girl-chic rules, business is brisk.

  "We read a lot about recession but the only thing we see is cheaper hamburgers and bento [lunch] boxes," says shopper Fumi Kaminaka.

  

  Japanese Prime Minister Junichiro Koizumi takes questions from reporters in Shanghai yesterday. His charisma may help him to push through needed reforms in Japan.

  PHOTO: AFP

  Indeed, the latest retail figures show that Tokyo's department stores are doing a roaring trade, registering good growth for four straight months. But parallels with Britain's two-speed economy are not appropriate. At best Japan's is a no-speed economy. At worst it is locked into deflationary reverse.

  Indeed upcoming statistics are expected to show that the economy contracted in the third quarter, which means that Japan is already six months into a technical recession. The Bank of Japan has downgraded its growth forecast for the fifth month in a row.

  The effect of the US attacks is expected to reduce demand for Japan's key exports. It is away from the shopping plazas, in the industrial areas, that the pinch is really being felt. "Recently the Japanese economic situation has become really bad," says Ryuichi Takeda, who runs Kowa Automated Machinery, a small business that sells weighing and counting machines. "I think most Japanese companies will have to undergo a huge change, and a lot of workers will lose their jobs."

  Ken Kutaragi, chief executive of Sony Computer Entertainment and the inventor of the PlayStation system, feels the same: "We will be watching our sales numbers very carefully over the coming months."

  But the problems are more deep-seated than the ups and downs of the economic cycle.

  Masaki Omura, a senior official at the Ministry of Finance, says: "There are three different problems -- structural reform, the legacy of the bursting of the bubble economy, and the current psychological economic situation.'

  And there are broader social phenomena that feed into these problems, such as a rapidly ageing population, and the end of the great catching-up process that saw Japan rise to become the second- richest nation on the planet.

  This backdrop informs the puzzling behavior of all the players in the Japanese economy, from the acute risk-aversion and impulsive saving of the general public, to the government's habitual attempts to manage the economy, and the corporate sector's reluctance to invest. In this environment, conventional monetary and fiscal stimuli just don't work.

  So this recession is being welcomed by many who chant the mantra of "structural reform" as an opportunity for fundamental change to the Japanese economy. Those hopes are carried by Junichiro Koizumi, the media-friendly Prime Minister, whose name sells everything from photo albums to Elvis Presley records.

  "I think the new Prime Minister is very good," Takeda said. "He has said that the Japanese people will have to take the hard times a little, because we need to change the economic situation."

  Koizumi's popularity -- the polls show a 70 percent approval rating -- is just about the best chance that Japan has had of achieving economic reform. He's pursuing a three-pronged revitalization plan: quick disposal of bad loans, revitalization through privatization and deregulation, and fiscal consolidation.
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