Japan’s Economy: Now Rated Below Botswana

July 8, 2002

Recently, the only good news about Japan's economy can be found in the country's peppy and colorful institutional advertising for its national bonds – which mocks the fact that the country's bonds have been rated behind tiny African nation Botswana.

The Japanese economy and banking system remains on the brink – and Sunday Japan's State Minister for Economic and Fiscal Policy Heizo Takenaka suggested mere predictions and platitudes won't fix the ailing second largest economy in the world.

Takenaka declared, "I think it possible to make our economic assessment more forward looking, steps further than our view that the economy has bottomed out."

The minister's halting optimism was fueled by private-sector machinery orders, a leading indicator of corporate capital spending, which jumped 8.4 percent in April from the preceding month.

Additionally, the Bank of Japan's quarterly Tankan report underscored a swelling demand overseas for Japanese autos, electronics and other finished goods.

But such nuggets do little to dispel the pall that has fallen over the Japanese economy.

Money continues to flee the Japanese economy, and the Wall Street Journal noted Friday that investors there continue to pour their money into gold.

The pall was most recently buffed to a dull gray by Moody's Investors Service's downgrading of Japan's bonds to "A2," a notch under little Botswana, a country that ironically receives aid from the Land of the Rising Sun.

Botswana earned its rating the old-fashioned way: brandishing a debt standing at less than 10 percent of gross domestic product, boasting foreign reserves 10 times the amount of its debt, and posting a growth rate of 9 percent for 2001. Its A1 mark is the best for any African nation.

Oteng Jenamo Tebape, Botswana's ambassador to Tokyo, modestly commented, "We have tried not to live above our means. We spend on a very, very conservative scale. From the 1980s, we have always run a budget in surplus, with the exception of one year, when we had a drought."

Japan's Ledger

By comparison, Japan's ledger sheet is not so simple or impressive. Japan's $4.2 trillion economy may be slowly shrugging off its third recession in a decade, but there are still fundamental issues.

* Japan's total debt to GDP is triple the American level. That is the highest any major industrialized country has faced in the last half century.
* Japan's economy shrunk by 1.3 percent last year. Meanwhile, the average age has crept up to 41, the highest in the world.
* Japan has $5 trillion in primary government debt, $3.7 trillion of which is bonds.
* Japanese companies continue to eliminate jobs, helping push the unemployment rate to a near-record 5.4 percent in May. With their jobs in jeopardy, Japanese are spending less on cars, homes and other expensive items.
* Thirteen percent of Japan's general expenditures go to social security payments and a whopping 20 percent to debt service.

More Institutions Under Assault

And it's not just the country's bonds under assault. The ubiquitous Moody's recently slashed its ratings for major Japanese banks, citing frail financial conditions and growing portfolios of bad debts.

The ratings were downgraded for member banks from four of the world's largest banking groups: Mizuho Holdings Inc., Sumitomo Mitsui Banking Corp., Mitsubishi-Tokyo Financial Group Inc. and UFJ Holdings Inc.

Construction companies are under the gun as well. Standard & Poor's Corp. recently reported that although Japan's 10 largest construction firms cut their debt by 1.5 trillion yen between March 2000 and March 2002, "the improvement in their financial profiles has been small in view of the rising business risks they face, and as a result, their credit quality has not improved."

But there is plenty on the good side of the ledger as well. Unlike cash-strapped Brazil or Argentina, Japan's debt is backed by the world's largest foreign reserves ($446 billion), the world's largest domestic savings ($11.4 trillion) and about $1 trillion in overseas investments.

Recently, Japan's trade minister, Takeo Hiranuma, said that ruling coalition parties would be tabling an "additional economic stimulus package." The package could include tax reforms and increases in government spending, he said.

Dave Eberhart, Newsmax
http://www.newsmax.com/archives/articles/2002/7/7/181019.shtml