Japanese prime minister Yoshiro Mori met in Washington with U.S. president George Bush March 19 where the two released a joint statement declaring that Tokyo would "promote vigorously structural and regulatory reform to revitalize the Japanese economy." Japan is the world's second largest economy after the United States and together the two countries account for 40 percent of the world's gross domestic product.
As Mori met with Bush, the Bank of Japan announced it effectively lowered short-term interest rates to zero and had adopted measures to expand the money supply to help stimulate the economy. Bank officials said the move was in response to the slowing global economy and "pervasive deflation that is eroding prices, wages, and asset values here," in the words of the New York Times, and will remain in effect until the consumer price index stops falling for a period of time.
Bush pressed Mori not to take advantage of a weaker yen to get the economy going by boosting exports to the United States, a move that would heighten competition and undercut U.S. businesses at home. An senior administration official said Bush "emphasized, and the two leaders agreed, that the answer is strong domestic growth brought about by deep, structural reform." Japanese officials said two hours later they had made no such deal, but added, "We are not aiming at export-led growth."
Several articles in the bourgeois media reporting on the recent sharp drop on the U.S. stock exchanges pointed to Japan's economic woes as one of the factors causing jitters among Wall Street investors. It was the "deepening malaise in Japan" that helped to "darken the outlook on Wall Street," the International Herald Tribune stated March 15 after the Dow Jones industrial average fell below 10,000--a 15 percent drop from its record high in January 2000.
Japanese firms and institutions own some $350 billion worth of U.S. Treasury bonds, nearly 25 percent of all such holdings outside of the United States. Japanese enterprises also own about $150 billion in direct investments in the United States as well as hundreds of billions of dollars worth of other U.S. stocks and bonds. With the U.S. economy "headed for recession, European growth is slowing," wrote Jeffrey Garten, dean of the Yale School of Management. "Further deterioration of the Japanese economy could finally have a serious effect."
Finances 'on the verge of catastrophe'
Teetering on the edge of another economic slump, Japan has never recovered from previous recessions in 1997 and 1998. After a March 13 cabinet meeting Finance Minister Kiichi Miyazawa said, "It's obvious the economy is showing trends of deflation." One week earlier the finance minister stated that the country's finances are "on the verge of catastrophe."
Some of the factors highlighting the country's dismal economic condition include:
The inability to resolve the economic malaise underlies the political crisis and scandals that have marked the Japanese government for the past 10 years. The ruling Liberal Democratic Party (LDP), which has governed the country since the mid-1950s, has become a symbol of rudderless leadership full of corruption, bureaucratic paralysis, and patronage. In the face of the country's economic problems Mori announced plans to step down March 10 after being in office just 11 months. He is Japan's 10th prime minister in 12 years, and there appears to be no rush by anyone to become number 11.
On March 15, Mori announced the formation of a cabinet-level task force that would work out a plan for addressing the crisis. Japan's capitalist rulers have been debating how to shrink excess manufacturing capacity, close down unprofitable banks, lay off massive numbers of workers, and eliminate public works projects for which it has spent $1 trillion since 1992.
The government and employers have so far been cautious about launching an assault on working people along the lines that their U.S. rivals carried out in the 1990s. Although it would increase their profit margins, the Japanese rulers fear such moves could spark broad working-class resistance. "Bringing in completely American-type principles of competition would take all air out of the employees" of Japanese companies, warned senior LDP legislator Shizuka Kamei.
Several Japanese companies have responded to intensified price competition by closing plants in Japan and building up manufacturing bases in other Asian nations as a way to increase productivity and reduce labor costs. Nissan Motor Co., Mazda Motor Corp., and Mitsubishi Motors Corp. have each announced plans to shut down assembly plants and factories. Executives at Honda Motor Co. are considering importing motorcycles from Honda plants in other Asian countries, which reportedly would allow the company to slash sticker prices on some bike models by 30 percent. "Rival Japanese motorcycle makers...fear they may have to cut jobs in Japan and move production overseas to stay competitive," the Wall Street Journal reported March 16.
Piles of bad loans
Japanese officials are divided over what to do about the country's banks, which are sitting on piles of bad loans. One scheme considered by government officials involves establishing a government agency to buy up the "nonperforming loans." The international ratings agency Fitch announced March 14 it had placed 19 Japanese banks on "rating watch negative." Among them are Japan's largest, including the Bank of Tokyo, Mitsubishi, Fuji Bank, Sumitomo Bank, and Sanwa Bank. A collapse of some of Japan's large banks would rock world financial markets if they defaulted on obligations to foreign banks.
Much of Japan's bad loans were made during the 1980s when overvalued land was offered as collateral for loans. In the early 1990s the real estate bubble collapsed and land values dropped sharply. Major banks approached bankruptcy and several financial institutions, including Yamaichi Securities, went belly-up. Bank of Japan's governor, Masaru Hayami, and other government figures have been pressing for Japan's banks to write off bad loans.
Imperialist investors around the world are worried about the long-term political and economic turmoil in Japan. Finance ministers from countries in the European Union said at a March 12 meeting in Brussels that they were concerned about the health of Japan's financial system.
Bourgeois figures in the United States have differed over how to press Tokyo on measures needed to resolve its economic crisis. The Bush administration "hasn't publicly lectured the Japanese as the Clinton brain trust was wont to do," opined the editors of the Wall Street Journal. The paper's editors called for Tokyo to slash government spending on social programs and urged banks to write off bad loans, force nonprofitable companies into bankruptcy, and dismiss "high risk borrowers." "So far," noted Business Week, the LDP government "hasn't had the stomach" for pushing through these "structural reforms."
In the 1990s the booming U.S. economy, which absorbed 30 percent of the world's total economic output, offset the economic crisis in Asia and other parts of the world. The U.S. bosses also increased their profits rates through productivity increases squeezed from the blood and bones of U.S. workers.
With more economic indicators showing signs of a slowdown in the U.S. economy, that buffer is not available this time around. According to the Associated Press, output at U.S. factories, mines, and utilities dropped by 0.6 percent in February--a figure twice as large as estimated by the Federal Reserve Board. Also the amount of utilized operating capacity fell from 80.1 to 79.4 percent in February as companies cut back because of weaker demand.
While described as a "temporary slowdown," U.S. investors are nervous that the profit squeeze affecting technology companies is only beginning to spread. "A lot of things that are being said in this country now were being said in Japan 10 years ago," said Richard Koo, chief economist of Nomura Research Institute in Japan.
Related article:
Capitalism has entered long-term deflationary crisis
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