Batten down the hatches: Japanese economic woes leave Australia perilously exposed

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Batten down the hatches: Japanese woes leave Australia perilously exposed An aging powerbroker blew the whistle, writes Herald Correspondent Michael Millett from Tokyo.

For more than a decade Kiichi Miyazawa has been shouldering the chains of Japan's rusting economy.

This week he shocked the nation - and the world - by throwing them off.

In a stunning unscripted outburst at a Diet committee hearing, the 81-year-old political veteran abandoned the stubborn front Japan Inc has presented to the outside world about its mounting economic problems.

The world's second biggest economy, he said, was on the verge of collapse because of its wanton spending and policy paralysis.

In Mr Miyazawa's view, the time for prevarication was over.

Japan would have to embrace hard decisions if it was to have any hope of remaining a world superpower into the 21st century.

To outside critics who have long been pointed out Japan's precarious financial position - its accumulated public debt reaching 666 trillion yen ($10.88 trillion), or a staggering 130 per cent of GDP, and the bad-loan crisis affecting the banking sector - the "revelation" is nothing new. The impact came from who issued it.

Mr Miyazawa is the epitome of the political establishment that has run Japan virtually unchallenged for five decades.

A former prime minister, he made a stunning comeback when recalled to the Cabinet as Finance Minister by the late Keizo Obuchi in 1998.

He deserves much of the credit for helping Japan recover from the shock of its late 1990s recession - a recession so severe it threatened, at one stage, to push the nation's financial system into chaos.

In all that time, though, Mr Miyazawa has stuck to the line scripted by his fellow powerbrokers in the ruling Liberal Democratic Party.

Mouthed, ad nauseam, it is that there is no need to panic, that steady, smooth administration would enable Japan to get on top of existing problems, with the debt mess to be tidied later.

It is now impossible for the LDP's decaying leadership to argue it can keep throwing public money at the economy until it recovers, with resurgent growth producing the funds necessary to wipe off the debt. The debt is too high and the economy too frail for that to occur.

The country's current leadership paralysis, coupled with the LDP's blatant porkbarrelling and a looming Upper House election, mean the pain Miyazawa is warning of will not occur in the short term.

The veteran's scrambling efforts to repair the political damage yesterday, arguing, lamely, that his wording was inappropriate, simply reinforce the internal resistance to change.

But Mr Miyazawa's utterances have changed the dynamics. Every move the Government makes (or doesn't) will now be viewed through the prism of his warning.

The financial markets, which have been remarkably tolerant of the LDP's failings and the country's two related debt crises, are now likely to ruthlessly mark down every policy failure.

What does it mean for Australia, grappling with its own economic problems?

In the short-term, the impact is less than Mr Miyazawa's much-less highlighted admission early this week that Japan has probably lapsed back into recession.

With the United States losing steam, the last thing Australia needs is its most important export market, absorbing 19.3 per cent of total exports, to be falling backwards.

During the late 1990s Asian financial crisis Australia was able to soften the blow of falling export orders by shifting to other markets. The challenge is being able to do so in a softening global market.

The issue is how long and how deep the Japanese downturn will be. Australian trade experts point out that we have been able to improve our share of the Japanese market over the past decade despite its prolonged economic problems.

We have been trying to exploit niche openings, such as the growing demand for high-quality foodstuffs and wine.

But unprocessed primary goods such as coal and iron ore still make up close to 50 per cent of total exports. This leaves us dangerously exposed to the frailties of the overall economy.

http://www.smh.com.au/news/0103/10/world/world2.html

-- Carl Jenkins (somewherepress@aol.com), March 09, 2001


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