Sad old men of Tokyo far from object of worry

PUBLISHED : Friday, 31 July, 1998, 12:00am
UPDATED : Friday, 31 July, 1998, 12:00am

A recent headline in this newspaper on the continuing story of Japan's financial troubles read 'Miyazawa fails to inspire'.

It may as well have read 'Obuchi fails to inspire'. Both Japan's Prime Minister Keizo Obuchi and the finance minister, former premier Kiichi Miyazawa, have never done a great deal to instil confidence in the Japanese economy.

But who truly expected them to? Can anyone count the number of prime ministers Japan has had since its economy began to falter in 1991? Can anyone tell the difference between them? They were all sad-looking old men at a loss to know what to do next.

One result has been further poor sentiment in the markets of other Asian countries.

The reasoning has been that if the Japanese economy continues to stumble, Japanese investment money will be pulled out of the rest of Asia and the financial crisis will deepen.

Perhaps. But people who adopt this line must deal with one difficulty. If it were to happen at all, it should have happened long ago.

The reasoning would work well if Japan's problems were the same as the rest of Asia's, if it were suffering from a deep current account deficit which foreigners were unhappy to fund through continuing capital inflows and which then forced Japan to keep its money at home.

But, in fact, Japan enjoys a current account surplus which stands at almost 3 per cent of gross domestic product and has been rising since the beginning of last year.

It also suffers from a balance of payments deficit at the moment but this is because of an outflow on the capital and financial account, which is approaching almost 4 per cent of gross domestic product and has been rising even faster than the current account surplus.

In other words, the Japanese economy is not pulling investment capital back in. On a net basis, it is still pushing it out and at a faster rate than it has ever done before.

The figures on net foreign assets in the monetary system confirm this trend.

The latest figures show them at the equivalent of 10.7 per cent of GDP which is slightly lower than at the beginning of the year but the emphasis here is on slight.

The trend since 1990 has been up, particularly in late 1994 when there was an enormous boom in lending to the rest of Asia.

So there is simply no evidence on hand yet that the feared withdrawal of capital has materialised in any way. Nor, if it does materialise, is it likely to be a heavy withdrawal.

Japanese investors cannot get their money out. Try asking an insolvent Indonesian company for repayment of loans. It will not happen.

The worries about the impact of a faltering Japanese economy on the rest of Asia are overdone.

They are not entirely without substance but the facts remain that Japan is not pulling money out, cannot pull much money out and is, in any case, a relatively small market for Asian products.

Ignore the old men in Tokyo.

The real story for the rest of Asia is elsewhere and it is not as sad.