BY MAURICE WILLIAMS
The Japanese economy is headed toward one of its worst downturns since the end of World War II, which has provoked anxiety among the major capitalist powers. With unemployment at its highest level in 45 years, the country's economy contracted 0.5 percent in the 1997 fiscal year, corporate profits are down 15 percent, and zero growth is projected in 1998, the April 13 Business Week reported.

Corporate bankruptcies soared 30 percent in February to 1,586, according to Tokyo Shoko Research, a credit research company. The company forecast 17,300 bankruptcies of companies owing a total of more than $100 billion for the 1998 fiscal year.

After adjusting for inflation, real wages of workers at large companies in Japan fell an average of 1.3 percent last year.

At the same time, the government carried through an austerity budget that included raising the sales tax and cutting social spending.

"The Japanese economy is currently facing its most difficult time ever," Norio Ohga, chairman and chief executive of Sony, declared April 2. "I am concerned that if Japan falls into a deflationary spiral it would affect the Asian economies."

Warning that the "economy is on the verge of collapse" that could trigger a world recession, Ohga compared Japanese prime minister Ryutaro Hashimoto with Herbert Hoover, the U.S. president at the start of the 1929 Wall Street stock market crash. "If you look at what Hoover was saying at the time of the great depression and what Mr. Hashimoto is saying at the moment, they are very similar."

Other world capitalist figures and mouthpieces expressed similar apprehensions. "Japan is suffering from the debt deflation of the kind that afflicted the US in the 1930s," the editors of London's Financial Times asserted April 4. "But the history of the past 18 months in Japan bears a closer comparison to the period under President Roosevelt in 1937 when industrial production collapsed."

Japan has the world's second-largest Gross Domestic Product, as well as the second-highest exports of goods and services behind the United States.

This would make it hard for the U.S. rulers and their rivals in Europe to avoid a profit squeeze if the crisis deepens in Tokyo's financial system. A financial collapse in Japan, whose economy totals $5 trillion, would have a sharp impact on the United States and the rest of the world.

The day after the Sony chairman made his comments, the international credit rating agency Moody's Investor's Service lowered its "view" of Japan's sovereign debt from "stable" to "negative." Last November, the investment bank Yamaichi collapsed less than three weeks after Moody's warned it was considering downgrading Japan's fourth-largest securities company to "junk bond" status.

Deepening banking crisis
The shift in Moody's "view" of Japanese debt falls short of a formal debt-rating review. Nevertheless, it could raise borrowing costs for Japanese banks, deepening the crisis for these institutions that already hold more than $600 billion in bad loans. The banks invested hundreds of billions of dollars in speculative loans to build golf resorts, high-rise office towers, and other real estate ventures dating back to the 1980s, which remain on the books as assets. Vastly inflated commercial real estate prices plummeted in the late 1980s and early 1990s, sending the economy into a decline.

The Japanese capitalists could face defaults on the loans they extended throughout Asia due to the wave of currency devaluations that was triggered when the government of Thailand released the baht's peg to the U.S. dollar last July. The currency devaluations make it more difficult for companies to pay back loans and the compounded interest.

Japan's top 19 international bank wrote off a record $76.7 billion in bad loans, according to a survey published by Nihon Keizai, Japan's major financial newspaper. The Industrial Bank of Japan, one of the nation's largest and most prestigious banks, announced April 2 that it planned to write off $4.7 billion of "problem" loans for the fiscal year - more than 50 percent higher than previously projected. The Bank of Tokyo-Mitsubishi Ltd. said it expects to lose $10.1 billion from bad loans for the same period.

The Japanese rulers have been derided by their rivals in Washington and Europe for lacking a decisive course of action to resolve the crisis. "Japan has entered its first economy-shrinking recession for almost 25 years; and the latest news suggests that no one in authority is capable of doing anything about it," opined the editors of the March 21 Economist of London.

"You simply can't stay with a strategy that is clearly not appropriate to the times and expect it to get the results that are needed for the country," said U.S. president William Clinton at an April 3 news conference.

"There is a growing sense that [Tokyo is] not up to the task, that they do not understand the gravity of the situation for Japan and the rest of the world," another White House official chimed in.

The Clinton administration has been squeezing Tokyo to pry open its financial markets for U.S. investors who seek to buy up its ailing financial institutions and other enterprises. Tokyo's "Big Bang" program of deregulations and reduced control over foreign investments, which officially began April 1, is slated to open $10 trillion of privately held investment capital in Japan to foreign investors. Merrill Lynch, the U.S. investment bank, is already probing to see if it can purchase the failed Yamaichi brokerage firm and "seriously explore opportunities available in Japan."

Meanwhile, 1,500 pilots at the All Nippon Airways, Japan's second-largest airline, went on strike April 6, to protest a pay cut the company tried to impose the previous week. The pilots say the earliest they would return to work was April 9, the day that pilots at the Japan Airlines Company, the country's largest airline, and the Japan Air System Company plan to strike.  
 
 
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