Japan on the brink, Sony chief warns
Fears of global collapse overshadow meeting of world leaders
Friday 03 April 1998
A chilling warning by the head of Sony, one of the world's largest corporations, that his country's economy was on the verge of disintegrating, came on the heels of a sequence of dismal economic news from Tokyo.
Norio Ohga, Sony president, said: "The Japanese economy is on the verge of collapsing ... If the economic situation continues to decline, we will face a long spiral of deflation. This will no doubt have a damaging effect on the world economy."
Although his words were addressed to foreign reporters - and therefore to the wider world - the message compounded a bad day for the stock and currency markets in Japan.
In a bitter personal attack, Mr Ohga compared Ryutaro Hashimoto, the Japanese Prime Minister, to Herbert Hoover, the American President who led the country into the Great Depression in 1929.
Mr Ohga's remarks, the strongest public criticism by a senior businessman of Mr Hashimoto's handling of the economy, came at the end of a grim day in Tokyo in which bad news from the business sector caused a further dive on the stock exchange. Economists also confirmed Japan was in recession.
The Nikkei share average experienced its biggest one-day fall of the year, closing at 15,702.9, a plunge of 538.76 points or more than 3 per cent. The drop followed the publication by the Bank of Japan of its quarterly survey of business confidence which revealed that morale is even lower than expected.
The Bank of Japan's "diffusion index", the difference between major manufacturers reporting favourable conditions and those experiencing hardship, was minus 31, compared to minus 11 three months ago.
"A broad-based recession is thus confirmed," said Jesper Koll, JP Morgan's chief economist in Tokyo. "Now a complete downward spiral adjustment is in evidence - corporations are adjusting down sharply their targets ... it will take at least one full year to reverse."
Mr Ohga's attack came as Mr Hashimoto was about to land in London for two days of talks with heads of government for the Asia Europe Business Forum. He has come under intense criticism from Europe and especially from the US for doing too little to stimulate domestic demand. Last week, the Japanese government announced a 16 trillion yen package of public spending while Wednesday saw the launch of the so-called "Big Bang", an ongoing programme of financial reform and liberalisation.
The "Big Bang" is intended to increase the efficiency of Japanese finance companies by forcing them to compete with foreign and domestic competitors - but before that happens, a number of weak firms are likely to go out of business.
The economic package disappointed businessmen like Mr Ohga because it contained no specifics of how the money will be spent. "The plan seems to call for more investment in the public sector," he said last night.
"However, I believe what we need now more than ever is to stimulate consumer demand." Neither measure succeeded in halting the recent downward trend of the markets.
Hopes of an export-led recovery are slim for two reasons: the Asian economic crisis has wiped out demand in South-east Asia, previously one of Japan's biggest markets; and the United States is determined not to allow its long-standing trade deficit with Tokyo to grow once again.
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