Falling numbers in land of rising
sun By Richard Hanson
TOKYO -
Japan's economic indicators are trickling in, and the
news could be better. What analysts are getting jittery
about and what they're watching closely is what one
described as the economy's "fear and greed" indicator.
In the past week or so, signs of slowing "but
not yet imperiled" levels of growth have been reported;
numbers have been revised downward, confirming some
private projections. Still, Japan's economic recovery is
said to be on track, despite slowing exports to China,
thanks to a basically strong corporate sector.
Start with the gross domestic product (GDP) for
April-June. Last week the Cabinet Office said quarterly
growth slipped to 0.3% for an annual rate of 1.3%, or
down from 0.4% and 1.7%, respectively.
This
isn't bad, considering that the economy was still
posting "real" growth for a fifth consecutive quarter
after recovering from a long slump. But it is a far cry
from the annual rates of 7.6% of October-December 2003
and 6.4% in January-March 2004.
That pace
reflected booming exports to China and the United
States. China's economy is expected to slow from what
one analyst had called a "red hot" 9.6% this year to an
8.9% rate in 2005. And that impacts Japan's economic
recovery fueled by exports to China.
Meanwhile,
outside estimates of Japan’s growth have also been
trimmed. The International Monetary Fund cut its
4.5% annual growth forecast made in April to 3.4% in
August. Another Washington, DC, think-tank projects a
drop to 2.5% in 2005 from 4.25% in 2005.
On
Friday, Reuters news service released its quarterly
forecasts as presented by a short list of economists
from investment banks and securities houses.
"Economists have revised down their growth
forecasts for Japan in the year ending next March and
see even slower growth the year after, but maintain a
recovery is on track on underlying strength in the
corporate sector," the story said.
"This soft
patch is transitory," a report by Societe Generale said.
"We may even see a couple quarters of negative growth,"
said Osamu Tanaka of Morgan Stanley. Negative growth, of
course, is a shrinking economy.
Another
government-related research organization posted its own
poll of economists and found expectations of GDP growth
of 3.6% for fiscal 2004-05 (ending next March).
What the economists are counting on is that the
economic base is still basically sound and will be able
to withstand a slowdown. They are also counting on
slower exports not triggering a further slowdown. They
also fear downward pressure from what they call the
"three excesses in the economy" - debt (private and
public), capital spending, and employment.
Then
there are the "fear and greed" factors. In a nutshell,
these involve human behavior and money. Examples now
abound in the news.
On Friday, Japan's Financial
Services Agency (FSA) ordered the Japanese commercial
banking unit of the world's largest bank (in asset
terms), Citigroup Inc, to halt operations at four
branches for one year from September 29 and it canceled
their licenses. The Citigroup units had violated
Japanese banking laws.
The bank or its units had
been ordered earlier to tighten up its operations after
mishandling customer information. The latest charge is
by the Securities, Exchange and Surveillance Commission
(SESC), which sought a penalty for misleading clients in
a series of private bond placements that took place in
2003.
That is stiff punishment, which basically
indicated to the authorities that the bank was not
looking after the best interests of its clients. The FSA
also cracked down on Cantor Fitzgerald Shoken Kaisha, a
unit of a US bond brokerage. It had allegedly been
executing orders on customer accounts in an irregular
manner.
Whether these reflect lapses as an
economy slows is hard to say. But the temptation in
market-driven businesses to maximize profits at market
highs is strong. One analyst points out another good
indicator of the "greed and fear" factor from the long
list of initial public offerings (IPOs) that are being
brought to the market this year, just as the economy and
the stock market may be in for a rough patch.
There were 121 IPOs for all of 2003. The number,
however, has risen sharply this year, with four more
companies listing last week, for a total of 100 so far.
What the analyst points out is that helping companies
first go public is a highly lucrative business when
market-related business is slowing. Not always, but
often enough, the investors are at risk of hyped prices
as the market peaks.
The lure is, or course,
greed for profit and fear that this may be the last time
in a while to make money in a slowing economy.
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