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> Japan Appears Headed Toward Crisis
> by YURI KAGEYAMA
> AP Business Writer
> TOKYO (AP) -- With the stock market plunging to 16-year lows, talk of
> deflationary dangers and a morass of confusion in its political
leadership,
> Japan appears to be headed toward a serious economic crisis.
> Surprisingly, a sense of crisis is hard to find among the public here.
> Most Japanese don't own stocks. Lower prices are seen by many as good news
> in a notoriously expensive nation. And back-room bickering over who might
> replace this country's lame duck prime minister is viewed as no more than
> another Kabuki play.
> But many indicators are ominous for the world's second biggest economy.
The
> finance minister Tuesday acknowledged what has been the latest fear for
> economists here: deflation.
> ''The economy itself is certainly in a state of deflation. There is no
> hiding that fact,'' Kiichi Miyazawa said.
> If left unchecked, deflation is extremely damaging by setting off a
downward
> spiral that is difficult to stop: The fall in prices leads to declining
> profits, which in turn sets off shrinking income and spending that further
> drag down the economy.
> For months, the central bank played down the possibility of deflation,
> saying that falling prices, which have continued for about a year and a
> half, show the market is finally opening up to competition. Speculation
has
> been growing that the Bank of Japan may change that outlook soon.
> Although the economy may manage the government target growth of 1.2
percent
> for the fiscal year ending this month, prospects are far more precarious
for
> the months ahead as companies rein in spending and the U.S. economic
> slowdown devastates Japanese exports.
> Tokyo share prices reached a new 16-year-low Tuesday. The benchmark
> 225-issue Nikkei Stock Average lost 2.89 percent to finish at its lowest
> close since January 1985. On Monday, the average had shed 3.75 percent.
> But while many Japanese are worried, the public's haze of angst hasn't
> turned panicky. Japan has so far averted many of the harsher costs of
> economic deterioration, such as massive layoffs. Unemployment, although at
a
> record high, is at 4.9 percent, not much higher than the U.S. jobless rate
> of 4.2 percent.
> ''As a consumer, it's good prices have come down,'' said Yu Suzuki, a
> 22-year-old student. ''And we have the feeling that we'll manage, that
> things won't get so bad we can't eat.''
> Most Japanese shrug off the stock market slide as affecting only the rich.
> Mutual funds aren't as common here as in the United States. Only one in 14
> Japanese owns stocks, according to the Japan Institute for Securities
> Information and Public Relations, which compiles information from stock
> exchanges.
> But deflation has been devastating for Japan's homeowners who bought
> property about 10 years ago and have seen its value nose-dive, in some
> cases, by about a third of the price they paid.
> Japan's downturn has its Asian neighbors nervous as well.
> ''We can't be too optimistic,'' said Tsai Hung-ming, secretary-general of
> Taiwan's Federation of Industries, noting a weak Japan paints a bleak
> outlook for the entire region.
> In South Korea, Yonhap news agency said in an editorial: ''Our economy is
> closely linked with those of the United States and Japan. We fear that the
> storms from the two countries may deal a heavy blow to our entire
economy.''
>
> The experts acknowledge deflation is difficult to pinpoint. Falling prices
> don't necessarily signal the negative social costs of deflation, they say,
> and could be a plus for consumers.
> Where the experts agree is that deflation becomes critical if not answered
> with proper policy. But coherent political vision is precisely what is
> missing in Japan.
> Most Japanese are disgusted by the wheeling and dealing -- rather than
open
> policy debates -- that determine important decisions, such as who will
> succeed the deeply unpopular prime minister, Yoshiro Mori. Mori reportedly
> told party leaders he would step down, but then denied doing so. While
high
> party officials want him out, there has been no clear indication of when
he
> would go.
> On Tuesday, he said the ruling party will move up the date for its
> leadership elections, a step that most likely would hasten his departure
> from office. But he did not specify a date for the vote.
> During nearly a year in office, he has done little to revive the economy.
> ''What's needed is to define the correct path to get out of deflation. But
> you need strong political leadership for that,'' said Takehiro Sato, an
> economist at Morgan Stanely in Tokyo.
>
> ----------------------------
>
> Net Worth of US Households Decline
> by MARTIN CRUTSINGER
> AP Economics Writer
> WASHINGTON (AP) -- The net worth of U.S. households, hurt by a falling
stock
> market, declined by 2 percent last year, the first annual setback in
> Americans' balance sheets in 55 years. <<<big deal>>>
> The Federal Reserve said Tuesday that Americans' total net worth was
$41.42
> trillion at the end of last year, a drop of $841.5 billion from their net
> worth at the end of 1999.
> It marked the first time that Americans' net worth had declined from one
> year to the next since the Fed began tracking the figures in 1945.
> The decline followed five straight years of strong increases in net worth
as
> individual wealth was driven higher by the booming stock market. Household
> net worth rose by 12.6 percent in 1997, 10 percent in 1998 and 14.1
percent
> in 1999.
> Private economists said Tuesday that the new Fed figures, contained in a
> report titled ''Flow of Funds Accounts of the United States,'' went a long
> way to explain the economy's current weakness.
> ''The bursting of the stock market bubble has eroded household balance
> sheets and undermined the willingness and ability of Americans to spend as
> aggressively as they had been spending,'' said Mark Zandi, an economist at
> Economy.com, a West Chester, Pa., consulting firm.
> Consumer spending, a major driving force during the record 10-year long
> economic expansion, has been supported in recent years by what economists
> called the ''wealth effect,'' the fact that consumers were more willing to
> spend as their investment portfolios rose in value.
> Zandi said the drop in the stock market last year and the continued
decline
> this year was triggering a negative wealth effect, in which consumers cut
> back on spending and save more as they see their portfolios shrink.
> ''The negative wealth effect is probably greater than the positive wealth
> effect because individuals now realize they will have to work harder and
> spend less to be able to finance the kinds of things such as retirement
that
> they were counting on in the future,'' Zandi said.
> The Fed report showed that household ownership of stocks, either directly
or
> indirectly in such things as mutual funds and private pension plans, fell
by
> 17.6 percent last year to $11.55 trillion, a loss of $2.47 trillion from
the
> previous year.
> Part of that decline was offset by gains in other assets held by
households,
> including homes and other real estate, which rose by 2.3 percent to $11.04
> trillion at the end of last year.
> Total household assets fell by 0.5 percent last year to $48.98 trillion.
> Total household liabilities, which include such things as mortgages and
> credit card debt, rose by 8.7 percent to $7.56 trillion. The difference
> between assets and liabilities left a household net worth of $41.42
> trillion.
> The Fed's balance sheet report combines households and non-profit
> organizations. Fed officials said non-profit organizations accounted for
> only about 6 percent of total financial assets.
>
>
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