Glint of rising sun between typhoons

I HAVE always maintained that business breakfasts are strictly for the birds. But there are notable exceptions. One was the recent morning munch hosted by the Consulate General of Japan and the University of Western Australia. The speaker, former chairman of the Bank of Tokyo-Mitsubishi, Mr Toyoo Gyohten, is tipped in some quarters to be a future governor of the central Bank of Japan.

Clearly a man worth listening to, Mr Gyohten holds out a realistic hope that Japan can awaken from its decade-long economic coma within two years – despite evidence to the contrary that rolls in every day. Sticking up for beleaguered Prime Minister Junichiro Koizumi, he said: “Koizumi has presented a concrete agenda for real reform. The momentum will continue, because there is now no credible political contender for his position.”

Mr Koizumi has made strides towards bringing the public housing and highway corporations under private ownership. More lofty ambitions, such as privatising the Postal Savings Bank – described by one commentator as the best example of financial socialism since Stalin – appear light years away.

Mr Gyohten, who spent more than 30 years in the Japanese bureaucracy, rising to become a vice-minister of finance, is president of the prestigious Institute for International Monetary Affairs. He points out that Japanese banks have now written off 7.8 trillion yen in non-performing loans, and predicts that the massive loan problems will reach manageable proportions by 2004.

He is also optimistic that, by then, the nation’s economy will be expanding at the rate of 2.5 per cent. By 2010, he expects the chronic government deficit will be translated into a surplus.

His recipe for escape from the grips of recession and deflation has three main ingredients: slow down the currency printing presses; curb public spending; and cut taxes. The Bank of Japan has been pumping 10 to 15 trillion yen a year into the financial system, which should have seen the money supply expand by 15 per cent. Instead, it grew a puny 3 per cent, because companies are still loath to borrow, even at close to zero interest rates.

“There is not much room left for stimulation” Mr Gyohten said. “We must re-establish business confidence, and get people to consume more and invest more.” He believes much of the trillions of yen spent on public works has been wasted, particularly on new super highways with few cars using them. Instead, he urges, taxes should be cut, with the relief centred on corporations, new ventures and research and development. Although the fiscal deficit is 140 per cent of GDP, total Japanese household savings are three times that figure. Mobilising that wealth is a target that has eluded successive governments since the great financial bubble burst in the early 1990s.

Exporters have been doing well so far this year, with corporations like Toyota Motor Corp and Sony leading the way. But the domestic economy is flat as a strap. Even though exports account for just 20 per cent of GDP, they are the only bright spot on the horizon. The export sector is highly efficient, while the distribution, construction and real estate sectors are inefficient. Although economic growth of 0.5 per cent was recorded in the April-June quarter, the Japanese Govern-ment immediately spoiled the effect by revising down to zero the 1.4 per cent expansion it had boasted for the previous quarter.

The stock market did not like that and the Nikkei Index immediately lost its grip on the 10,000 level.

Consumer spending showed a tiny rise in the June quarter for the first time in 43 months. But two huge typhoons that hit the country in July took the wind out of sales.

Retail prices are still falling, wages are shrinking, and unemployment is hovering near a record 5.5 per cent

Despite its enfeebled condition, Japan’s $US2.4 trillion economy accounts for two thirds of the total goods and services produced in the Asian region. It is far and away Australia’s biggest trading partner, and relations between the two countries have been good for half a century.

We must fervently hope that Mr Gyohten’s relatively upbeat assessment of Japan’s prospects comes to pass, and that the political will is there to ensure that it does.

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