Tokyo Admits No Rebound Is in Sight
Amid the sharpest plunge in Japanese stock prices in more than a year, the Tokyo government is admitting with growing candor that no economic rebound is in sight.
Such a pessimistic public stance is prompting speculation that the government will soon take actions--such as an income tax cut--to re-energize the economy.
Bank of Japan Gov. Yasushi Mieno acknowledged in a Wednesday speech that upbeat official forecasts of this spring have proved wrong. “There seem to be no signs supporting economic recovery in the latter half of fiscal 1993,” the central bank chief said.
In a report Tuesday, the Economic Planning Agency dropped optimistic language about an impending recovery that was contained in previous monthly reviews.
Analysts said the gloomy economic report contributed to Tuesday’s plunge in the Tokyo stock market, with the key Nikkei average of 225 stocks falling 499.45 points, or 2.7%. The index eased 4 more points Wednesday, to 18,121.71--a drop of 10.8% since Oct. 26.
The decline over the last 11 trading days--the steepest fall since June, 1992--pushed the market to a seven-month low. At midday today, however, prices rebounded somewhat: The Nikkei was up 116.01 points at 18,237.72.
“Right now, the Japanese economy is in extremely bad shape,” said Kunio Miyamoto, chief economist at Sumitomo Life Research Institute. “At the beginning of this year, we thought the Japanese economy had hit bottom and was about to recover. But since then we’ve had a lot of unfortunate things. . . . Day by day, the expectation has been getting worse.”
Sharp appreciation of the yen, construction industry scandals that have chilled plans to boost public works spending, and a cold summer that hit agriculture hard have all played roles in battering the economy, Miyamoto noted. Declining corporate profits and fears about possible wage cuts next year have also contributed to the pessimism, he said.
“There’s a vicious circle--a worsening economic outlook, which reduces business confidence, and this reduces consumer demand,” he said. “The decline in the Tokyo stock market reflects this deterioration in the real economy.”
The Economic Planning Agency report said the economy--which contracted at a 2% annual rate in July-September--now is stuck in a state of ashibumi (“foot stamping”)--in other words, it is making noise without going anywhere.
The downbeat planning agency report “is just kind of facing reality,” said Jeffrey Young, an economic analyst with Salomon Bros. Asia Ltd. “When they make this shift . . . it’s easier for them to take additional support measures.”
Pressure is growing for an income tax cut of about $46 billion next year. Finance Ministry officials have called for that to be balanced by a consumption tax increase.
But under the pressure of bad economic news, any corresponding consumption tax hike could be delayed, to avoid diluting the stimulative effect of the income tax cut.
Mieno, in his Wednesday speech, offered only vague prescriptions for remedying the economic ills. He said the central bank’s slashing of its official discount rate to a record low of 1.75% in September was enough monetary stimulus for now but that, if necessary, the bank will take further steps to help financial institutions make loans. He also expressed hope that tax reform and deregulation would help reinvigorate the economy.
But he said clearly that he saw no risk that the speculative “bubble” economy of the late 1980s might reinflate. Some observers saw in this a sign that the government will take more decisive action.
“Reading between the lines, he’s saying that the economy is in such bad straits we don’t need to worry about over-stimulation,” said Keith Donaldson, an equity strategist at Salomon Bros. “He’s willing to expedite measures. I find that positive.”
