OECD optimistic on Japan

IN A RARE note of optimism about Japan's economic prospects, the Organisation for Economic Co-operation and Development (OECD) said yesterday that the latest tax and spending package might be enough to keep the economy from recession this year.

Only last month the organisation, a club for the world's 29 richest economies, downgraded its forecast for growth in Japan. It predicted a 0.3 per cent drop in GDP this year.

Yesterday, however, an update to take account of the government's stimulus package concluded that the measures could boost growth this year to zero. "If their implementation is rapid, the package may stabilise activity in calendar year 1998 and under favourable circumstances lead to real GDP growth of some 1.5 to 2 per cent over the fiscal year that has just begun," it said.

Vincenzo Visco, the OECD's chief economist, added: "Japan needs to implement the plan faster than it has in the past."

The slightly more upbeat forecast did not prevent the yen from slipping further against the dollar on the foreign exchanges. The currency approached the 138 level, having dropped sharply on Monday after a report that the US was prepared to see a weaker yen.

The only comment yesterday from Robert Rubin, US Treasury Secretary, was that exchange rate policy remained "absolutely unchanged".

The yen's renewed weakness - which helped push sterling higher yesterday - was also down to purchases of dollars by new investment funds set up in the wake of last month's "big bang" deregulation of the financial sector, analysts said.

The OECD stressed that Japan needed to back up the fiscal package with extra measures. "Ensuring a rebound in confidence and achieving a self- sustained recovery will also require that the structural momentum of reform be maintained."

The new head of Japan's Keidanren made the same point as he took over the reins of the influential employers' organisation yesterday. "You cannot expect a fully-fledged recovery from stimulative steps alone," said Takashi Imai, chairman of Nippon Steel. He called for further financial and tax reforms.

Bronwyn Curtis, chief economist at Nomura in London, said the tax and spending package announced last month could have a significant impact on growth later this year but was not enough by itself to ensure a lasting recovery.