Japanese fallout fades under pressure of facts

PUBLISHED : Wednesday, 10 June, 1998, 12:00am
UPDATED : Wednesday, 10 June, 1998, 12:00am

With the yen tumbling further on a daily basis it is natural to worry about the impact of Japan's troubles on the rest of Asia.

I am not about to dismiss these worries.

Japan's economic health undoubtedly has an impact on the economic performance of other Asian countries, particularly with confidence as fragile as it is at the moment.

But it should be put into perspective.

The picture of Asia as a self-sufficient whole with Japan at its centre has some validity in loan financing but it has had gradually less in direct investment and it does not apply to trade.

The loan figures remain uncertain. The bankers themselves are still struggling to work out what it is in total.

The most authoritative source, the Bank for International Settlements, had it at somewhere near US$250 billion advanced by Japanese banks to other Asian borrowers in the third quarter last year.

This is a great deal. However, a substantial if unquantified proportion consists of loans to Japanese companies operating in Asia, loans to Asian governments and trade loans.

These are not the problem areas. The problem lies more in lending to domestic Asian businesses at high interest rates to make up for low interest rate loans made to Japanese entities in order to keep Japanese business in Asia in Japanese hands.

But much as the Japanese banks may want their money back now they are not getting it. The domestic borrowers cannot pay. This means that although new Japanese lending may be restrained, there is also a severe restraint on the outflow back to Japan on the loan account. There is a stopper in this drain.

In direct investment the data is uncertain as the different sources vary.

However, every figure I have seen indicates that, relative to the size of Asian GDP, the flow from Japan peaked in 1990 with the height of the Japanese boom and has since receded to not much more than 1 per cent of aggregate Asian GDP. Pride of place has been taken by a combination of Hong Kong, Singapore and Taiwan.

In trade, Asia, excluding the mainland, ships little more than 10 per cent of its exports to Japan and the figure has declined over the past decade.

The figure for imports from Japan is nearer 20 per cent of total imports, or was before the financial crisis broke, but this is not about to set the rest of Asia back.

Japanese industrialists are not about to turn down Asian buyers if they can still pay and, as the imports go down, the trade balances improve.

It is also worth noting that the gyrations of the yen have not in the past resulted in Japanese exporters gaining a competitive edge over their Asian neighbours. Put the export figures in US dollar terms, the natural currency of trade, and Japan shows the same cycles in growth rates as the rest of Asia (see chart below).

The arguments for why it is so could fill the entire issue of this newspaper today and still not cover it all - but the hard facts of the statistics remain. In trade, Japan goes up and down with the rest of Asia. The movements of the yen do not have much of an impact.

I'm not saying that we can ignore what is happening in Japan.

My point is only that the rush to panic stations is a little too rapid these days. The links to Japan are nowhere near as tight as Mexico's or Canada's to the US.

This may not always have been a blessing but it is one now.