Crisis worsens for Japan and HK

JAPAN yesterday unveiled its worst unemployment figures since World War II, as the yen slumped to a seven-year low against the dollar. Although the news cast a pall over Japanese markets it registered nothing like the shock of the Hong Kong government's revelation that the economy had slid into recession for the first time in 13 years.

In the first quarter of the year, Hong Kong's economic growth declined by 2 per cent in real terms, a drop far worse than expected by investors. The stock market was closed when the announcement was made and so did not respond but fears over the economy have caused a 6.5 per cent fall in share prices over the past week.

Sir Donald Tsang, the Financial Secretary, was forced finally to admit that his 3.5 per cent growth target for the year was unattainable. Describing the present situation as "an unprecedented economic upheaval", Sir Donald said he was no longer able to provide an economic forecast for the full year.

However, the consensus of most private sector forecasts is for flat, or at best marginal, economic growth, most of which is expected in the last quarter. A sharp decline in tourism and much reduced consumer and capital spending were cited as reasons for the economy edging into recession.

In Japan, where bad news has flowed freely for some time, the announcement of a 4.1 per cent unemployment level and the market's dispatch of the yen to an exchange rate of 139.23 against the US dollar, barely shook the stock market, where prices fell less than 1 per cent.

The steady fall of the yen has caused the Japanese currency to crash through successive barriers where support was expected. Intervention by the Bank of Japan to prop up the yen has proved ineffective in the past. US support may now come into play. Yesterday Thomas Foley, the US ambassador in Tokyo, said Washington was closely watching the rapidly rising US-Japan trade imbalance.

Legislators in Tokyo yesterday passed a package of measures to cut income taxes and boost public spending, primarily aimed at lifting domestic consumption off the floor.