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Japanese, Unfamiliar With Hard Times, Look for Ways to Halt Economic Slump

DEALING WITH DOWNTURN

By Clayton JonesStaff writer of The Christian Science Monitor / December 3, 1993



TOKYO

JAPAN, which has inspired the world with bright ideas on management and economics, is stumped for creative ways to overcome its three-year slump.

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A free fall on the Tokyo stock market earlier this week, coupled with the worst unemployment in six years, has left government officials wondering what to do next. Old ideas, such as lowering interest rates, spending more on public works, and using pension funds to boost stock prices, have not worked over the past year.

The official discount rate is at its lowest level ever - 1.75 percent - and public works spending is up by 21 percent in 1993. But still these monetary and fiscal measures have failed to stimulate the economy. Pessimism over government inaction helped to bring down the 225-share Nikkei stock index by nearly 20 percent over the past month. Only after officials hinted of new economic measures and put pressure on insurance companies to boost stock prices did the Nikkei respond. On Wednesday, the index rose 4.38 percent, and then another 1.95 percent yesterday to end at 17,458.

Gloom persists because ``asset deflation'' continues to ravage the economy, analysts say. Japanese banks and corporations are struggling to get out from under a mountain of overinvestment and bad debt taken on in the late 1980s.

In addition, poor weather this past summer and a rapid rise in the yen have pushed back economic recovery until well into 1994.

Bad economic news seems to arrive daily. Japan's automobile exports fell 25 percent in October from a year earlier. Industrial production declined 5.1 percent. And Tokyo now has such a surplus of office buildings that the government predicts the construction industry for office buildings will not recover until the next century.

``The near-term economic outlook remains dim,'' says Robert Feldman, chief economist at Salomon Brothers in Tokyo. But ``most of the bad news for the economy should wane within the next few months.'' To boost consumer spending, business lobbies want an income tax cut of $50 billion to $100 billion. But even though the new administration of Prime Minister Morihiro Hosokawa hopes to implement such a cut by early spring, many business leaders now want even more measures.

A TAX cut of $50 billion would free up 1.6 percent of household disposable income, but there is no certainty that the Japanese would not just put the money into savings. ``No one can say with confidence that an income tax will truly stimulate spending,'' states Reitaku University economics professor Yukio Suzuki.

With a recovery ever more elusive, Mr. Hosokawa is under pressure in parliament to put economic stimulus ahead of his drive to pass political reform laws by the end of the year.

On Tuesday, for instance, he sought advice from Setsuya Tabuchi, former head of Nomura Securities Company, on how to keep the stock market from plunging any further. Mr. Tabuchi told Hosokawa to ease restrictions against companies buying their own shares.

And Hosokawa also moved quicker than usual to ask parliament for a $7 billion supplementary budget for the fiscal year through March 1994. In another step to rejuvenate the economy, the government plans to ease regulations of real estate transactions that were put in place to control the asset inflation of the late 1980s. Many businesses need to sell large lots of land, but have been officially restricted.

In October, the government reported that the number of unemployed Japanese workers rose by 21.4 percent from a year earlier, reaching 1.76 million. Many millions more are now ``underemployed'' in corporations. Most of the decline came in manufacturing, while the number of workers in the construction and service sectors actually increased slightly.

So far, big Japanese firms have avoided massive, American-style layoffs in order to maintain the much-vaunted ``lifetime employment'' system. Instead, they have reduced payroll costs by attrition or retirement incentives while sidelining many workers into idle posts. Both Mazda Motor Corporation and Nissan Motor Company recently forced workers to take time off as a one-time, cost-cutting measure.

The Labor Ministry plans to provide $1 billion in subsidies to those businesses coping with an ``excess'' labor force. In a move to boost Japan's global lead in high-tech industries, some subsidies will be given to healthy corporations that accept workers on a temporary basis from firms that want to lay off people. The purpose is to encourage a flow of labor away from low-productivity firms.

To boost the stock market, many analysts want Japanese banks to be more forthcoming on the extent of their bad loans. The banks do not include loans that have received new financing or that no longer pay interest.

In late November, Japan's 11 city banks reported their nonperforming loans to be $85.6 billion, up 9.6 percent from six months earlier.

Many analysts say the total of bad loans could be as high as $500 billion. Bank of Japan Gov. Yasushi Mieno said after the report that the ``banks have started seriously grappling with the problem of nonperforming loans.''

But efforts to shed bad loans could take up to three years, leading many analysts to forecast less than 2 percent growth in the next fiscal year as banks remain unwilling to extend new loans.