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Sunday, June 21, 1998 Published at 18:19 GMT 19:19 UK


Business: The Economy

World watches for Japanese recovery

Tokyo workers look for signs of economic recovery

Japan's economy is in a perilous state, prompting fears that the whole world could be dragged into the economic crisis that has overtaken South-East Asia.

Recession is making Japanese shoppers spend less and save more, creating a deflationary spiral that's been driving the Yen lower.


Economist Dr Ken Kurtis says this is the "last chance" for Japan
A nation once obsessed with gadgets and consumerism is simply not buying any more.

Dr Ken Kurtis, an economist who attended meetings of top financial officials in Tokyo at the weekend, says that this is the last chance for Japan to put its house in order.

Japan dominates

The region is dominated by Japan, the world's second-largest economy which must take the lead in any recovery. In three years, the Yen has fallen by more than 40%.

The crisis has its roots in US$500bn of bad debts held by Japanese banks.


[ image: A flood of cheap Chinese exports would cause economic turmoil in the West]
A flood of cheap Chinese exports would cause economic turmoil in the West
If the Yen keeps falling, China, whose spectacular economic growth is built on cheap exports, could be forced to join in.

This would risk flooding the west with cheap goods, threatening western companies and banks with bankruptcy and luring the dollar and the pound into the downward spiral.

In South Korea, trade unions are already protesting at soaring unemployment.

South Korea and its neighbours may also be forced to devalue to compete.


Noriko Hama of the Mitsubishi Research Institute says Japan's crisis could lead to competitve devaluations
Noriko Hama, of the Mitsubishi Research Institute, says this could trigger a competitive series of devaluation - of what she calls "currency wars".

At the 1997 Asia Pacific Economic Co-operation (Apec) summit in Vancouver, President Clinton and other regional leaders dismissed South-East Asia's economic trauma as a "glitch".

Now, in a major policy reversal, that glitch has been recognised as an international economic emergency.


[ image: Summers: Japan must move quickly]
Summers: Japan must move quickly
Saturday's meetings in Tokyo of top finance officials from around the world illustrated the gravity which the international community attaches to Japan's economic problems.

US Deputy Treasury Secretary, Lawrence Summers, said it was important Japan took the "window of opportunity" that the meetings offered to quickly implement plans to improve its economic prospects.

Billions spent

On Wednesday, share values across the world's markets soared as word spread that billions of dollars were being spent in an unprecedented attempt to prop up the Yen and defuse the emergency threatening to engulf the Japanese economy.


[ image: President Clinton: major policy reversal]
President Clinton: major policy reversal
President Clinton authorised what amounted to a major policy switch to confront a crisis that's now threatening to wash up on American shores.

He said Japan is vital to US efforts at supporting an economic recovery and stability in Asia, which would support America's continuing prosperity.


President Clinton says Japan is vital to Asian and US prosperity
The US is concerned that if the yen continues to slide, a flood of cheap exports from Japan, the world's second biggest economy, may cost jobs and close factories around the world.

President Clinton said Japan had promised aggressive reforms to get its economy going and America would support them. He said the US and Japan agreed to intervene jointly again if necessary.



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Internet Links

Japan Economic Planning Agency

Keidanren: The Japan Federation of Economic Organizations

Is Japan Headed for Recession? Nihon Keizai Shimbun special report

Japan Development Bank

US Treasury


The BBC is not responsible for the content of external internet sites.




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