NO. 6 -- February 14, 1997


Feature Article


Analysts may have been so focused on Japan's spectacular fall from the ranks of economic superstars in the early 1990s that they overlooked the economy's recent progress. Although the long-term problems of Japan's economy are real, the nation nonetheless continues to stage a solid, if undramatic, recovery from the 1991-93 economic downturn. Many news accounts on both sides of the Pacific, however, continue to stress the serious problems afflicting the economy.

Additional bad economic news over the next several months will provide evidence that will appear to strengthen the arguments of the pessimists. However, most of these developments will prove transitory in nature. On the other side of the ledger, the weakness of the yen probably will result in the first real boost to Japan's economy from the foreign sector since 1993, a possibility not widely foreseen even a few months ago.

On balance, real economic growth in 1997 probably will average about 2 percent. A figure at that level, while unimpressive by the standards of Japan's past, will be enough to convey a sense of improving economic conditions. It also will solidify an impression of Japan's recent economic performance as about average for a mature industrial nation.

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Weekly Review

Currency Traders Reject G-7 Ministers' Hint That Markets Need A Breatherby Douglas Ostrom

Analysts had expected for weeks that a scheduled February 8 meeting in Berlin of the finance ministers and central bankers from the seven largest industrial democracies would clear the air concerning exchange rates generally and, in particular, resolve the issue as to whether the yen would be allowed to continue depreciating against the dollar. The answer actually appeared to be forthcoming a day earlier, delivered in the elliptic language of which the Group of Seven is so enamored. Secretary of the Treasury Robert Rubin said at a February 7 news conference that the "dollar has been strong for some time now."


Japan's Energy Market Getting Shocked by Jon Choy

The Japanese energy industry and marketplace, insulated by years of heavy and tight government regulation, is being shocked by the forces of deregulation and popular activism. Since Japan became an industrialized economy early in this century, government economic planners and the public have been convinced that a stable energy supply is one critical component of national prosperity. Some scholars assert, for example, that Japan chose the military option in 1941 because the United States was threatening its energy and other natural resource supply lines.


FY 1997 Budget Debate May Prove Politically Harrowing by Barbara Wanner

With the January 31 enactment of the FY 1996 supplementary budget, Prime Minister Ryutaro Hashimoto won an important budget battle, but the Liberal Democratic Party-led government may yet lose the war over the next fiscal year's spending plans. Mr. Hashimoto has pledged to secure passage of the ¥77.4 trillion FY 1997 general account budget by the March 31 close of the current fiscal year. At this stage, however, it is unclear whether the ruling party can realize this goal without agreeing to cut pork-barrel projects and/or scale back the planned April 1 increase in the consumption tax to 5 percent from 3 percent.

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