Is Japan upsetting US or scaring it? Given all that's going wrong in the US economy, rising unemp...
Is Japan upsetting US or scaring it?
Given all that's going wrong in the US economy, rising unemployment, falling stocks and weakening consumer confidence, the nation's top policy makers would seem to have plenty on their hands.
That hasn't stopped Alan Greenspan and Paul O'Neill from focusing considerable attention on events on the other side of the world.
The Federal Reserve chairman and Treasury secretary are making expansive comments about Japan's feeble economy these days.
Not criticism, per se, but statements of concern about how the world would be a better place if its second-largest economy were stable. Greenspan's and O'Neill's musings on Japan leave little doubt that Tokyo's failure to boost the economy is scaring them more than angering them. When the US was booming, Japan's troubles somehow seemed less menacing. Now that's changed. So has the nature of comments from US officials.
It's a subtle, yet important, shift in emphasis. About a year ago, the Clinton Administration realised that chastising Japanese officials for their failures wasn't working. So they left Japan alone, more out of frustration than strategy. President George W Bush's team has stuck with the butt-out-of-Japan's-business policy. Now that Japan's economy is deteriorating anew, dissatisfaction has given way to anxiety.
Japan's slowdown "has an effect throughout the world because you cannot have the second largest economy in the world essentially stagnant without impacting the rest of us," Greenspan told the Senate Finance Committee recently. The "turgid performance" of the economy, he said, "has created a significant element of dampening in world economic activity" and "I should certainly hope they would get their economy back on the track they've been on" in past periods.
O'Neill was more direct. "It's crucial for the second largest economy in the world to return to a path of strong and stable growth," he told the National Association for Business Economists on 27 March. The Treasury secretary is being careful not to lecture Japan. It did his predecessors Lawrence Summers and Robert Rubin no good.
In fact, it was counterproductive; all it did was upset Tokyo and make politicians less receptive to outside advice. Yet O'Neill's comments about the need for Tokyo to act are gradually becoming sharper. He's called on Tokyo to open its economy to global trade and write down bad loans.
When Tokyo unveiled the plan, it's doubtful that O'Neill was satisfied. The package, which centered on setting up a fund to help banks write off bad loans, got the thumbs-down in global markets. Investors felt the strategy lacked detail and has little chance of ending Japan's 10-year economic slump. The US Treasury had no official response to Japan's package, something it may have done if it were heartened by the package.
Visiting Japan these days, one perceives a lack of urgency among politicians and voters alike. Japan appears to be at a crossroads, Western officials believe, and the status quo just won't do anymore.
Yet tell that to Japan's ruling, and embattled, Liberal Democratic Party, which seems more interested in consolidating its power than fixing the economy.
Fixing a banking system hobbled by tens of trillions of yen worth of bad loans and a corporate sector that's made scant progress reducing debt will require strong political will. It also calls for speedy action, particularly since Japan's falling stock market removes the cushion many banks had used to offset non-performing loans. Trouble is, none of the politicians named as successors to Mori seem likely to come up with fresh ideas to get the economy moving.
Even the LDP's newest plan to revive growth and the stock market is already drawing jeers among investors. The plan calls for banks to write off almost 13 trillion yen ($104bn) in bad loans and includes setting up a fund to buy shares banks hold in each other and other companies.
Japan's political paralysis is only adding to Washington's unease. As a politician, O'Neill tried to put the best face on Japan's prospects. "I'm ever optimistic that they are going to announce things that will propel their economy forward at a rate that they're capable of," O'Neill said last week. Strangely enough, the Treasury chief seems to have more faith in Japan's outlook than the Bush Administration has in the US's Still, it's not clear whether O'Neill intended to give Tokyo a little friendly encouragement or if he thinks Japan really is serious this time.
William Pesek, Bloomberg Washington newsroom
Due to leave 31 May
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