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NO. 20 — May 22, 1998

***JEI Report Will Not Be Published May 29 ***
Due to the Memorial Day Holiday.

***The Next Issue Will Be Dated June 5. ***

Feature Article

ASIA'S LOCOMOTIVE: JAPAN'S POTENTIAL AND LIMITATIONS by Douglas Ostrom

Summary

Geography and economics have converged this year to spawn the question of whether Japan is the "engine that could" pull Asia out of the doldrums. After all, despite a lack of meaningful growth for at least seven years, Japan's economy still is the second largest in the world and the biggest in Asia.

Japan, however, is unlikely to be the locomotive on the Asian main line. The reason is not so much that the economic policy direction in Tokyo will prevent Japan from growing, although growth may well remain sluggish. Nor does Japan's lack of help stem from an unwillingness to provide assistance.

Japan's sidetracked position has more to do with the patterns of trade between it and its Asian neighbors and how those patterns are likely to change. They suggest a rather limited role for Japan. The United States — and Asia itself — have more promise as candidates to pull the Asian train up the economic mountain.

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Weekly Review

***JEI Report Will Not Be Published May 29 ***
Due to the Memorial Day Holiday.

***The Next Issue Will Be Dated June 5. ***

WASHINGTON, G-8 PRESS JAPAN ON REFORM by Barbara Wanner

This year's summit of the leaders of the Group of Eight industrial nations could have been much worse for Prime Minister Ryutaro Hashimoto. Having endured scathing criticism at home for economic mismanagement, the beleaguered premier traveled to Birmingham, England for the May 15-17 high-level talks no doubt braced for more lashings from his counterparts from Canada, France, Germany, Great Britain, Italy, Russia and the United States.

 

INDIAN NUCLEAR TESTS PROVOKE SANCTIONS FROM TOKYO, WASHINGTON by Eric Altbach

Tokyo has joined Washington in imposing tough sanctions on New Delhi after India conducted five underground nuclear tests May 11 and May 13. Prime Minister Ryutaro Hashimoto announced May 14 that Tokyo would suspend new yen loans to India and recall its ambassador. Japan also will review its participation in loans provided to India through such international development institutions as the World Bank and the Asian Development Bank.

 

FY 1998 SUPPLEMENTAL BUDGET SENT TO DIET by Jon Choy

To back up Tokyo's huge ¥16.7 trillion ($139.2 billion at ¥120=$1.00) fiscal stimulus plan, Prime Minister Ryutaro Hashimoto led his cabinet May 11 in a vote to submit to the Diet a record ¥6.1 trillion ($50.8 billion) supplemental appropriation for the fiscal year that started April 1. In addition, the cabinet approved an amendment to the Fiscal Structural Reform Act of 1997 that would delay stringent deficit-reduction goals and give the government flexibility to expand spending during an economic slowdown like the one currently gripping the nation.

 

BANK RESTRUCTURING ACCELERATES IN JAPAN by Douglas Ostrom

Authorities continue to fine-tune their strategies for coping with Japan's ailing financial sector. Less than two years after a pair of failed institutions were rechristened with names suggestive of a fresh start, officials and business executives have come around to the view that the two cannot be revived. Moreover, within the space of a little more than a week, at least four separate actions were announced that will have the effect of consolidating the ranks of Japan's smaller financial institutions. Whether these and similar actions will suffice to deal with potential problems among their bigger brethren is in doubt, however.

Notes:

The lower house of the Diet approved Prime Minister Ryutaro Hashimoto's plan May 12 to reshuffle the current structure of the central government by January 2001. The pending legislation aims to bring the central government into step with the economy's current and future needs, reduce the size of the bureaucracy, make the work of ministries and agencies more transparent and hold bureaucrats accountable for their decisions. When their alternative plan was voted down, opposition parties pledged to work hard against the bill in the upper house, where the ruling Liberal Democratic Party lacks a majority.

Some last-minute concessions by Tokyo and Washington's current big-picture view of the transpacific relationship prevented the issue of Japan's willingness to move on U.S.-sought regulatory changes from souring the atmosphere of the May 15 talks in Birmingham, England between President Clinton and Prime Minister Ryutaro Hashimoto. Their meeting on the sidelines of the Group of Eight summit (see article in this issue) was the due date for a status report on the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy. The two leaders had agreed at the last G-8 summit to set up this bilateral forum to give the United States direct input into Japan's deregulation process, starting with telecommunications, housing, medical devices and pharmaceuticals, financial services and structural problems like distribution (see JEI Report No. 24B, June 27, 1997).

***JEI Report Will Not Be Published May 29 ***
Due to the Memorial Day Holiday.

***The Next Issue Will Be Dated June 5. ***

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