Sat, Dec 29, 2001 page19

• For Japan, 2001 was the year of the groundhog

  Like the movie 'Groundhog Day,' every morning brought the same bad news on the economy and hollow pledges of change

  • By William Pesek Jr. / BLOOMBERG
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  In the 1993 movie Groundhog Day, Bill Murray played a television weatherman forced to relive the same day over and over again until he gets it right.

  It all happens when he goes to Punxsutawney, Pennsylvania, to cover the annual groundhog festival. Every morning Murray's character wakes up to the same day, at the same moment, to the same cheesy tune playing on the radio.

  That's been Japan's experience over the past year. Every morning brought the same gloomy news on the economy -- falling prices, rising unemployment and corporate bankruptcies. Each and every day featured hollow pledges from politicians to fix things.

  Yet each and every time folks rolled out of bed it was with the knowledge that their finances hadn't -- and wouldn't -- improve.

  No laughing matter

  The film Groundhog Day was a comedy; for the Japanese, this year was anything but. A new year is about to start just as this one began. Pessimism is pervasive; uncertainty reigns. In many ways, the economy moves into next year on even worse footing. Banks that promised a year ago to write down bad loans and let deadbeat companies fail didn't. Companies that pledged to reduce debt levels haven't. Japan biggest problem -- bad loans -- worsened.

  That doesn't mean this year was devoid of new -- and hopeful -- developments. Topping the list was the emergence of Junichiro Koizumi, Japan's charismatic and wildly popular prime minister.

  The self-styled maverick came to office vowing to shake things up in Tokyo. For all his talk, however, Koizumi hasn't accomplished anything of note.

  That is, except for the kind you don't write home about.

  Economic-record trackers had a busy year where Japan was concerned. It fell into its third recession in a decade.

  Industrial production hit a 14-year low. The national debt approached ?666 trillion, the biggest in the industrialized world. Unemployment hit an all-time high of 5.5 percent. The number of corporate bankruptcies hit a 17-year high. And Japan offered the lowest interest rates among developed nations: zero percent.

  Bad news seems good

  Things looked so dire that even bad news seemed good. Take the rash of corporate firings over the past year. Marquee-caliber corporate names appeared to trim jobs as rarely before. The trend had pundits predicting the death of lifetime employment.

  Closer inspection shows just how exaggerated such claims were. Jobs not eliminated via expensive early retirement packages were cut overseas. Many "firings" meant employees were shifted to affiliate companies. It's yet another example of how subjective words like "change" and "reform" can be in Japan.

  The rising number of corporate bankruptcies over the past year was also read as a triumph for change. This too comes with a gaping caveat. Yes, companies such as Mycal Corp, Aoki Corp and some other household names went bust this year, exciting investors who saw the trend as evidence Koizumi was for real. Yet for every company that ran out of breathing space, there were 50 big ones that banks continued to carry.

  The sense of deja vu here in Japan came from the Koizumi administration itself. For all its talk about "no-pain-no-gain" economic reform, it quickly resorted to protecting the status quo. Rather than increasing competition in the economy, Koizumi's Cabinet spent most of its time trying to weaken the yen.

  Its pledge to end Tokyo's reliance on stopgap strategies quickly gave way to extra government spending.

  Koizumi even passed the buck on Japan's biggest problem: bad loans. Instead of taking the lead, he deferred to bureaucrats from the Financial Services Agency. The FSA, mind you, is the agency that can't even come up with a credible estimate of how big the problem is. It claims Japanese banks hold ?151 trillion in bad and risky loans; some in the private sector think the figure might be double that.

  Upsetting the neighbors

  About the only thing Koizumi accomplished this year was upsetting Japan's neighbors in Asia. Last August's visit to the Yasakuni Shrine, where several convicted war criminals are among those honored, strained relations with China and South Korea. Koizumi's shrine visit was a wink to his party's right wing, but its cost to his stature on the global stage is still being counted.

  Roiling China is the last thing Koizumi should be doing these days. Japan's giant neighbor sucked up more of its jobs and capital this year. A growing number of Japanese companies are shifting production to China, where labor and land costs are a fraction of Japan's. Even individual investors from Tokyo to Hiroshima are shunning Japanese stocks and buying Chinese shares.

  On the bright side, this year seemed to mark the beginning of the end of Tokyo's denial about its financial problems. International ratings agencies came out of the woodwork to lower Japan's credit rank. The downgrades were a wake up call for politicians who thought they could issue as much debt as they wanted, prop up hundreds of zombie companies and postpone reforms indefinitely.

  Eventually, ratings downgrades will spook investors, push up Japanese government bond yields and undermine a stock market that has little going for it now. Japan joined Italy as the worst credit risk among Group of Seven members, and there will be a price to pay. In this way, this year may have been pivotal year for Tokyo.

  It was also a year women will long remember. By giving birth to a girl days before her 38th birthday, Crown Princess Masako may have started two revolutions. One was ending the cultural stigma attached to delaying childbirth. The other was resurrecting the debate over whether Japan should amend laws barring women from ascending the royal throne.

  It may be the 21st century, but Japan is still a place where women are actively discriminated against in the workplace. It's perfectly fine for an employer to ask a woman how old she is, whether she's married and when she plans to have children. Women can also be told they're not getting a job because of their sex.

  `Masako Effect'

  It's also considered a national crisis when women choose a career over getting married and having children at a young age.

  The "Masako Effect" shouldn't be discounted here, not only for the economy but also in the way Japanese society views women.

  The royal birth also gave Japanese households a rare opportunity to celebrate. After a decade of recession and, more recently, rising unemployment and deflation, consumers here have had little to rejoice over. The arrival of a new princess -- and a possible empress -- led to dancing in the streets of Tokyo.

  If next year holds any promise for Japanese voters, it's that their days of waking up to the same bad news, day in, day out, may soon end. If not, there's always a Bill Murray flick or two at the video store to cheer them up.
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