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No. 26 — July 7, 2000

Feature Article

LONG-TERM PROSPECTS FOR JAPAN IN A COMPARATIVE ECONOMIC AND POLITICAL CONTEXT

Interview With Charles Wolf Jr., RAND

Summary

RAND — a Santa Monica, California-based think tank that, since its founding, has had close ties to the Department of Defense — recently completed a research project that compared economic trends in the People's Republic of China, India, Indonesia, Japan and South Korea. One prediction to emerge from the study is that the Japanese economy will expand in the range of 1.2 percent to 1.6 percent a year over the next 15 years absent certain influences, such as reacting to a far higher rate of growth in China — say, 5 percent a year on average. Tokyo might respond to this advance by moving faster than it otherwise would to restructure the economy, with the result that growth could be 1 percentage point or more above the baseline figure.

One of the participants in the study, Japan expert Charles Wolf Jr., RAND senior economic adviser and corporate fellow in international economics, is cautiously optimistic about the prospects for economic restructuring in Japan's public and private sectors as well as about that country's economic relations with the United States. In a recent interview with JEI Senior Economist Douglas Ostrom, Mr. Wolf concluded that shifting economic and political factors will serve to reduce tensions in the U.S.-Japan economic relationship over the next decade and a half.

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Weekly Review

TOKYO BAILS OUT RETAILER, OPENS CAN OF WORMS
--- by Jon Choy

What began as a business effort to keep afloat a second-tier department store operator has turned into a very public test of the government's financial-market stabilization policies. The Financial Reconstruction Commission announced June 30 that the Deposit Insurance Corp. would buy ¥197.6 billion ($1.8 billion at ¥110=$1.00) worth of loans extended to technically bankrupt Sogo Co., Ltd. by what was Long-Term Credit Bank of Japan, Ltd. and immediately forgive ¥97 billion ($881.8 million) of the amount. Even though the DIC won concessions from Sogo and its main bank, Industrial Bank of Japan, Ltd., the use of public funds to erase the debts of a nonfinancial company &emdash; especially a midsize competitor in an industry divorced from Japan's economic future &emdash; has unleashed a heated debate about the meaning and the impact of this unprecedented action.

 

TANKAN RESULTS IMPROVE, BUT CONDITIONS IN JAPAN NOT CAUSE FOR CELEBRATION
--- by Arthur J. Alexander

The bullish results of the Bank of Japan's June tankan (short-term survey of business prospects), announced July 4, ignited celebratory fireworks by already-optimistic financial analysts. The improvement in the quarterly poll's headline statistic &emdash; the diffusion index of business conditions among large manufacturers, which is calculated by subtracting the percentage of pessimistic responses from the percentage of positive ones &emdash; exceeded even the upbeat preannouncement consensus forecast of movement to minus 4 from the last tankan's minus 9 (see JEI Report No. 14B, April 7, 2000). In fact, this closely tracked statistic advanced into positive territory with a reading of 3. Improvements in business sentiment were recorded across the board for almost all of the issues covered by the survey questionnaire.

 

SOUTH KOREA EASES BAN ON JAPANESE CULTURE
--- by Marc Castellano

Seoul announced June 27 that it would further relax its ban on so-called cultural imports from Japan, allowing for the first time public performances of Japanese pop music groups without restrictions. The move follows a host of recent initiatives aimed at strengthening bilateral ties, the most ambitious of which include efforts to work out a free-trade arrangement and to negotiate an investment accord. Seoul's longtime restrictions on the availability of Japanese culture, broadly defined, and certain made-in-Japan products, imposed due to lingering animosity over Tokyo's colonial rule of the Korean peninsula from 1910 to 1945, gradually have been dismantled in the face of a general warming trend in Japan-South Korea relations.

 

GOING DOWN TO THE WIRE ON NTT INTERCONNECT FEES
--- by Susan MacKnight

Months of political paralysis in Tokyo have left Japan less than two weeks to work out with the United States a compromise on the depth and the timing of the cuts that Nippon Telegraph and Telephone Corp.'s two regional operating units will make in the fees they charge other carriers to use their networks to move voice and data traffic the "last mile" between local switching centers and homes and businesses. Riding on the outcome of this effort, which will start July 10 in Tokyo with discussions among government experts, is the nature of the atmospherics at the July 21-23 summit of the leaders of the Group of Seven industrial nations plus Russia. Prime Minister Yoshiro Mori and the other powers-that-be in Japan want a settlement before the G-8 talks to ensure that the interconnection-rate dispute does not distract from the gathering's big-picture agenda (see JEI Report No. 19B, May 12, 2000).

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