Japanese Argue About Way to Spur Economy : Commerce: There is no consensus on how to pull out of a two-year slump.
Japanese politicians and bureaucrats are engaged in unusually divisive squabbling over how to pull the economy out of recession, with much of the criticism directed at Bank of Japan Gov. Yasushi Mieno.
Most agree that eroding corporate profitability, excessive inventories and sluggish capital investment are signs of an unexpectedly severe slowdown.
Mieno’s own bank released a quarterly survey Friday showing a plunge in business confidence. The scandal-stricken Tokyo Stock Exchange’s Nikkei 225-share average has languished just above the psychological barrier of 20,000 points for almost two months.
But there is no consensus among policy-makers on how to guide the economy.
Politicians, goaded by business constituents, are demanding a relaxation in monetary policy to stimulate the economy. Mieno, struggling to preserve the central bank’s autonomy, is resisting.
Elder lawmaker Shin Kanemaru, in a harsh statement, growled last week that the discount rate should be cut even if it means firing Mieno.
After fumbling for months with various suggestions, the ruling Liberal Democrats set up a special “project team for studying the economy’s direction,” which last Wednesday urged a discount rate cut.
A cut in the discount rate--the interest charged on loans to banks--would tend to encourage stock and capital investment, helping to spur growth. The bank last lowered the discount rate--by 0.5 of a percentage point, to 4.5%--on Dec. 30, the fourth cut since June.
One telltale sign of weakness in the economy came Friday from the Bank of Japan’s quarterly report on business sentiment, commonly called the tankan.
The bank’s survey of 7,447 companies showed that its index of business confidence fell to minus 5 from 13 in December, the first negative reading since November, 1987.
The index represents the percentage of companies that saw business conditions as “good” minus those that said they were “not good.”
Despite the gloomy findings, a bank official said the report confirmed the Bank of Japan’s stance that its latest discount rate cut is still taking effect.
Adrian Tschoegl, chief economist at SBCI Securities Ltd., says the results from December’s rate cut can be expected to show up in the next three to six months, by which time the economy should be rebounding.
Having learned from experience that relying too heavily on monetary policy carries the danger of igniting speculative activity in financial markets and real estate, Prime Minister Kiichi Miyazawa and Finance Minister Tsutomu Hata have backed Mieno.
Excessive lending due to extremely low interest rates is thought to be a key reason behind the phenomenal inflation of Japan’s land and stock prices in the late 1980s. The central bank raised rates to counter the excesses and worries they could recur.
Unable to sway the central bank, on Thursday top government ministers, including Miyazawa, agreed to draw up plans to encourage capital investment to stimulate the economy by accelerating government spending on public works projects.
Among a range of other proposals, Foreign Minister Michio Watanabe recently spoke in favor of promoting the Japanese yen as an international currency like the dollar on the premise that a stronger yen would draw more investors into the anemic stock market.
Many individual investors have abandoned the stock market following disclosures in the past year of dubious trading practices at many brokerages.
Other plans include limiting the use of stock index warrants, which aren’t expected to thrive because of investor pessimism, and forcing companies to increase the dividends they pay on new stocks.
The government already has delayed sales of its holdings in former government monopolies like the railways. And brokers have suspended new stock issues for almost two years due to concern about an oversupply of stocks.
The failure of those measures to rally the market has left many observers skeptical about the government’s ability to turn the economy around.
