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STRATFOR.com
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THE INTERNET SOURCE FOR GLOBAL INTELLIGENCE
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From Economics to Politics, a Rolling Japanese Crisis
April 1, 2002
Summary
The new fiscal year in Japan opens on a grim economic picture. Planned financial restructuring will cause greater problems for businesses and banks, as well as a higher level of unemployment. Japan's predicament is rooted as much in its political and social systems as in the financial sector. The interesting thing is not how Japan will go about solving its financial problems, rather it is what the social, political and cultural consequences of economic failure will look like.
Image Credit: Stratfor.com.
Analysis
April 1 is the beginning of a new fiscal year in Japan and, despite recent government-engineered gains in the Nikkei, the economic picture is even grimmer than before. Notwithstanding some creative efforts at life support, the Japanese economic system cannot survive indefinitely in its current incarnation. At a certain point, when the underlying forces build up sufficient tension, something will crack in Japan's financial system. This 'earthquake' will extend from the economy into the political and social spheres. When this will happen is not really clear. What will trigger the shakeup is clearer: substantial and visible defaults on a debt structure that is already unsustainable.
Japan does not exist in a vacuum. Most of Asia has followed the Japanese development model, with a lag time of anywhere from five to 20 years. Japan's state-centric model began breaking down in 1990, and, by 1997, the rest of Asia was in difficult straits as well. Therefore, the issue is not merely the fact that Asia's largest economy is in terrific trouble, but that the rest of Asia will be depressed by Japan's failures, which itself has structural problems with which to contend. There may be exceptions, but, in general, the Japanese disease will transform itself into the Asian disease.
Japan is currently in its longest recession of the post-World War II period. An unsightly mix of 17 months of recession and deflation has gouged everything from manufacturing orders (down 22 percent for 2001) and company earnings (down 72 percent in 2001), to factory use (at record lows) and capital spending (down 12 percent in the last quarter alone). Japan's only year of GDP growth above 1.6 percent occurred in 1996, when most of the reconstruction after the Kobe earthquake was completed. Standard & Poor's recently reported that not a single Japanese firm it has contacted has expressed optimism for the next business year.
(The Rest of the Story)
(c) 2001 Stratfor, Inc.
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Dan
From Economics to Politics, a Rolling Japanese Crisis . . .