Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education



Front Page

World

UK

UK Politics

Business

Sci/Tech

Health

Education

Sport

Entertainment

Talking Point
On Air
Feedback
Low Graphics
Help

Thursday, November 19, 1998 Published at 16:00 GMT


Business: The Economy

The rocky road to recovery

Head to head: Bill Clinton and Keizo Obuchi: will Japan recover?

US President Bill Clinton says nothing is more important to restoring stability and growth in Asia than efforts to kickstart Japan's economy.

His argument is straightforward: "If Japan is very strong, that brings back Asia."

The not-so-straightforward part is how to bring about Japan's recovery from its worst recession since World War II.


[ image: The crisis in Japan has hit financial markets all over the world]
The crisis in Japan has hit financial markets all over the world
Japan has been an engine for world growth in previous decades and if it fails to recover there will also be dire repercussions for the UK, US and other leading economies at risk of financial fallout from developing nations.

Asia's problems have also created a crisis of confidence in the world's financial system which has left many economies on the brink of disaster.

Government recovery plan

Japanese Prime Minister Keizo Obuchi is pinning his hopes on an economic stimulus package of more than 23 trillion yen ($189bn) unveiled earlier this week.

Central to the plan is ¥10 trillion ($82bn) for new public works projects and ¥4 trillion ($33bn) in income tax cuts.

Corporate taxes will also be cut sharply.

One of the government's more controversial ideas is to give shopping coupons to 35m citizens in the hope that it will spark a consumer boom.

The elderly and families with young children will be given vouchers worth ¥700m ($5.8bn).

But consumers continue to save, not spend, as the magnitude of Japan's economic predicament has become clear.

More tax cuts?

On an optimistic note the promise of co-operation between Japan's ruling Liberal Democratic Party and the opposition Liberal Party has raised hopes of a smooth passage for the package through parliament and sparked speculation about a suspension of Japan's sales tax.


[ image: Traders and investors are yearning for stability]
Traders and investors are yearning for stability
A decision to hike this consumption tax from 3% to 5% in 1997 has been identified as a major factor in bringing on Japan's recession after having a devastating effect on consumer confidence.

However Mr Obuchi is convinced his new measures will ensure Japan's economy grows by 2.3% within the next two years.

During the US president's trip to Japan, he said: "I would like to convey to President Clinton Japan's strong resolve to return the economy to positive growth in fiscal 1999."

Bad debts galore

US and Japanese leaders also announced at the Apec meeting of Asia-Pacific leaders in Malaysia this week plans to offer more than $10bn in aid to struggling Asian nations and banks.

But some financial experts remain sceptical that the packages still do not go far enough.

"We need growth which is led by the private sector, not by fiscal spending," said Yoshito Sakakibara, Senior Economist at Goldman Sachs.

Japan's economy is expected to shrink markedly this year and unemployment will rise beyond its already record levels.

The Organisation for Economic Co-operation and Development is forecasting growth of only 0.2% forecast in 1999.

In 1997, Japan's economy shrank by nearly three-quarters of 1%.

Banking still weak


[ image: Japan is desperate to get consumers spending]
Japan is desperate to get consumers spending
The OECD says the major risk in Japan remains the restructuring of the debt-laden banking sector, which could further impede recovery and spill over into other economies.

That could also cause weakness in the yen, putting presssure on China to devalue its currency and spawning another round of the Asian currency crisis.

Japan faced a ¥60 trillion ($490bn) bill last month to help the nation's banks write off massive bad loans and restore the ailing financial system.

The collapse of the banking system has put pressure on companies who are finding it difficult to obtain credit, thus pushing the economy further into recession.

Company profits slashed

The 1997 record of ¥14 trillion in bankruptcy debts is expected to be exceeded this year and corporate profits have slumped 30% compared to last year.

Adding to the chorus of gloomy voices is the head of Japan's Economic Planning Agency, Taichi Sakaiya.

He said last month that there were strong concerns that the Japanese economy would contract for a third successive year.

An array of depressing statistics that Japan will have to overcome if it is to avert the threat of a global recession.



Advanced options | Search tips




Back to top | BBC News Home | BBC Homepage | ©


The Economy Contents


Relevant Stories

17 Nov 98 | The Economy
Boost to ailing Asian banks

12 Nov 98 | The Economy
Rescue plan for Japan's economy

11 Oct 98 | The Economy
Japan's shrinking economy

22 Sep 98 | The Economy
Japanese government sticks to bank deal

17 Jul 98 | The Economy
Japan's $600bn headache

02 Jul 98 | The Economy
Meltdown in Asia - part 1: the origins of the crisis

29 Jun 98 | The Economy
Unemployment adds to Japanese gloom

19 Nov 98 | The Economy
World watches for Japanese recovery





In this section

Inquiry into energy provider loyalty

Brown considers IMF job

Chinese imports boost US trade gap

No longer Liffe as we know it

The growing threat of internet fraud

House passes US budget

Online share dealing triples

Rate fears as sales soar

Brown's bulging war-chest

Oil reaches nine-year high

UK unemployment falls again

Trade talks deadlocked

US inflation still subdued

Insolvent firms to get breathing space

Bank considered bigger rate rise

UK pay rising 'too fast'

Utilities face tough regulation

CBI's new chief named

US stocks hit highs after rate rise

US Fed raises rates

UK inflation creeps up

Row over the national shopping basket

Military airspace to be cut

TUC warns against following US

World growth accelerates

Union merger put in doubt

Japan's tentative economic recovery

EU fraud costs millions

CBI choice 'could wreck industrial relations'

WTO hails China deal

US business eyes Chinese market

Red tape task force

Websites and widgets

Guru predicts web surge

Malaysia's economy: The Sinatra Principle

Shell secures Iranian oil deal

Irish boom draws the Welsh

China deal to boost economy

US dream scenario continues

Japan's billion dollar spending spree