Once the strength behind Asia, Japan's failing financial status is steadily eroding any credibility it once held in the global markets
Here, in what many consider the centre of the capitalised world, it is not what people in business are talking about that is interesting, it is what they are not saying.
There's plenty of chatter about troubles in the US economy, Europe's stock slide and Latin America's financial woes. China's rise often comes up, as does Indonesia's continuing implosion. Asia's attempt to stay out of recession also gets attention. What doesn't come up much is Japan, the world's second-biggest economy.
Asians have known for some time that Japan, their traditional engine of growth, is less of a factor in the region and its role is getting smaller by the day. But the rest of the world is increasingly wondering how much Japan matters. Ask people in the US why and you'll get some variation of: 'There's no real direction in Japan, no real leadership. Pretty soon, Japan will be overtaken by others in Asia anyway.'' Such views have Tokyo fighting for relevance, both economically and politically.
'They're just not the country they used to be,'' says Peter McTeague a global bond strategist with Greenwich Capital. Yes, Japan still matters. It is home to Asia's biggest markets and boasts its only truly international currency. It is also by far the region's biggest economy, China's is rising but it is hardly big enough for the G7 nations to consider booting out one of its members.
Japan has some excellent, internationally competitive companies such as Sony and Toyota. It also provides crucial financing and loans to Asia and parts of the developing world.
Yet Japan's status has been shrinking steadily, a side effect of its 12-year slump and the paralysis in Tokyo over how to fix things. The trend is likely to continue in years to come. Japan's government can't even agree it has a banking crisis on its hands, never mind fix it. Tokyo remains in denial.
For Washington, Japan's slide out of the spotlight is riddled with risks, both geopolitical and financial. But then the US government has unintentionally done as much as any to turn investors away from Japan.
The process began in the final years of the Clinton Administration and continues to play out. In late 1999, the-then US Treasury Secretary Lawrence Summers decided essentially to write off Japan. For years, Summers and his predecessor, Robert Rubin, came up with new soundbytes and not-so-veiled admonishments of Tokyo's policy makers but achieved nothing. And so, Summers decided the US would leave alone its most important ally, more out of frustration than strategy.
President Bush's economic team arrived in January 2001 claiming to have a new hands-off policy toward Tokyo. The Bush White House wouldn't lecture Japan. In reality, it merely formalised what Clinton's team already concluded, that Japan was destined to grow 1% a year at best for the foreseeable future. No amount of jawboning Tokyo would change that.
While the world buzzes about Japan's relevance or irrelevance, the US boom of the 1990s offered some instructive insights. Wall Street may be on its back at the moment, but a few years ago, it was destined for one of history's greatest financial booms. As Japan suffered through its Lost Decade, the US thrived as rarely before.
Asset values surged, the nation practically ran out of workers and once-in-a-generation advances in technology captivated the world and took many of its economies along for the ride. The period proved that the global economy could grow quite vigorously without Japan.
The irony, of course, is that Japanese officials have turned to blaming their troubles on the US. When the Nikkei 225 Stock Average falls, Tokyo point it finger at sliding US assets. When the yen rises and hurts Japan's competitiveness, it is the fault of the wobbly dollar. Funny how the US wasn't an issue for Japan when it was healthy.
In fact, the 1990s might have been much harder on Japan if not for the the US boom. True, the US sucked up more than its fair share of global capital during the period, depriving others of investment. But US consumers also bought loads of goods from Japan and the rest of Asia. What if the US had not been there to buy Japan's goods?
That's not to say Japan isn't a key concern for global policy makers. Industrialised nations still spend considerable energy mulling what a Japanese banking crisis would mean for the entire world. But most attention paid to Tokyo these days concerns how to avoid its policy mistakes over the last decade.
In the US and Germany, officials wonder how vulnerable their economies are to a Japan-like malaise. They wonder if their central banks can avoid the missteps of the Bank of Japan, which raised rates too much 12 years ago and lowered them too slowly afterward. Also under discussion is avoiding Tokyo-like fiscal policy makers who seem to know little more than how to sell mountains of debt.
Nothing will restore Japan's global status like a strong recovery. Each year that goes by without one will see Japan's influence wane, not only in Asia, but here in the heart of global finance.
Bloomberg newsroom, New York
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