Clinton Scolds Tokyo as Yen’s Slide Continues
The dollar soared to a seven-year high against the yen on Friday, capping a disheartening week for Japan that saw investors flee, stocks tumble and critics here and abroad step up their attacks on the government’s handling of a deteriorating economy.
While a leading international credit-rating agency questioned Japan’s resolve, President Clinton used unusually blunt language to suggest that the government is mired in the past and called on its leaders to overcome the “entrenched resistance” of its bureaucrats.
Moody’s Investors Service on Thursday said it was shifting its outlook for Japan from “stable” to “negative,” signaling that the influential agency views Japanese debt as increasingly risky.
That helped push the dollar up to 135.20 yen in Tokyo trading Friday, its highest since Sept. 9, 1991. In New York later Friday, the dollar was quoted at 135.10 yen, up from 133.50 yen Thursday.
The benchmark Nikkei-225 stock index fell 185.15 points, or 1.2%, to close Friday at 15,517.78, its lowest since Jan. 14. For the week the index lost more than 1,200 points, or 7.3%.
Japan’s tumbling yen and stock prices also exacerbated economic concerns across East Asia this week, threatening a new downward spiral. South Korea’s main stock index plunged 13.6% for the week, to 434.45. In Singapore, the main stock index dropped 6.2% while Hong Kong’s fell 5.8%.
Japan faces “continued weakness in domestic economic activity, and emerging deflationary pressures,” Moody’s said. The downgrade in outlook, it said, reflected “uncertainty about the ability of the authorities to achieve a policy consensus that would help promote a return to economic growth and fiscal balance.”
The same theme was struck by Clinton in remarks at the White House. He described a “raging battle” between Japan’s bureaucracy and its business community on the policies needed to bring the Japanese economy out of its moribund state.
A day earlier, the chairman of Sony Corp. had made a virtually unprecedented attack on the policies of Prime Minister Ryutaro Hashimoto and said Japan’s economy was at risk of collapse.
“We need to be both respectful but firm in urging the Japanese to take a bold course,” Clinton told reporters. “The people within the permanent government there, which have always enjoyed great power, have to realize that the strategies that worked in the past are not appropriate to the present.”
The ruling Liberal Democratic Party recently announced vague plans for a $119-billion economic stimulus package to be fleshed out in coming weeks, with public works spending and possible tax cuts. But analysts and investors have remained skeptical about what portion of that total will really constitute new measures with direct impact in promoting growth.
Japan has also just launched a key step in Hashimoto’s “Big Bang” financial system reforms. Various measures that took effect starting Wednesday, including foreign exchange liberalization, make it easier for Japanese to invest abroad.
Moody’s warned that the “Big Bang” reforms could weaken Japanese financial institutions by leading to shifts of Japanese savings to overseas assets.
Moody’s said that for now it is maintaining its highest-possible “Aaa” rating as Japan’s “country ceiling,” which is the rate assigned to government-guaranteed debt. That ceiling also marks the highest rate than can be given to any private Japanese corporation.
The “change in outlook” means that Moody’s might cut Japan’s country rating, but only after a review process that would take at least 18 months, the agency said. If the rating is cut, that would bring lower ratings for top Japanese corporations too, making it more expensive for them to borrow.
Companies with triple-A ratings that would be affected by any eventual cut in the “country ceiling” include Toyota Motor Corp., Nippon Telegraph & Telephone Corp., Tokyo Electric Power Co., and Kansai Electric Power.
While not offering clear policy prescriptions, Moody’s criticized “structural weaknesses in the financial system” and noted that tax cuts and public spending in the mid-1990s “had only a transitory effect on boosting economic activity, but left the public sector more heavily indebted.”
Etsuko Kawase of The Times’ Tokyo bureau contributed and Reuters was used in compiling this report.