Bold moves bear fruit as Japan Inc booms again

Junichiro Koizumi will go down in history as the prime minister who turned Japan from a virtual economic basket case - at least by its own high standards - back into a confident and powerful economic engine for the region and the world.

Mr Koizumi was required to make very hard decisions, but the country is now reaping the benefits of choices that caused pain for the public and a rupture within his own party. And the Japan Inc of today is certainly more prudent than it was in the 1980s, when silly money was thrown at equally silly projects.

'For what he has achieved, I give Mr Koizumi very high marks,' says Nobuyuki Nakahara, a former member of the Bank of Japan's policy board appointed by the outgoing prime minister to his economic advisory team.

'Most importantly, he was able to successfully resolve the issue of non-performing loans at mega-banks at the same time as the Bank of Japan stuck to its monetary policy of quantitative easing, which gained enough time for even the 'zombie companies' to resurrect themselves.'

Mr Nakahara predicted back in 2002 that the recession would be beaten by the end of 2004, at the latest, because of the speed at which bad loans - which some estimated had stood at 110 trillion yen (HK$7.35 trillion) at their peak - were being removed from balance sheets while 50 trillion yen in fixed assets were being reduced.

'His greatest merit was being able to restore Japan's economy without adding much in public expenditure, as would have been the case under previous administrations,' Mr Nakahara says, adding that his structural reforms and deregulation efforts, such as the privatisation of the post office, are progressing, although many projects are in 'only the very early stages'.

He says Mr Koizumi's 'strength of character' enabled him to make the changes, although economists are also aware that Japan's new growth owes a debt to China's booming economy. But there was also a large element of luck.