IMF Urges Japan To Take Measures Against Deflation
By Michael Williams and Ron Harui, 10/10/2002, The Wall Street Journal

TOKYO -- Calls are mounting on Japan to buoy its economy with bolder monetary and fiscal stimulus, as fears spread about the potential impact here of U.S. economic weakness and Tokyo's promise of a tough-sounding banking-sector workout.

The International Monetary Fund's chief economist urged Japan's central bank yesterday to wage a more aggressive fight on the price deflation that is ravaging corporations and banks. "Bringing an end to deflation is critical, no matter what happens in the rest of the economy," the IMF's Kenneth Rogoff said during a speech in Tokyo.

The government, meanwhile, warned that Japan's mild, export-driven economic recovery is under threat from a tumbling domestic stock market and softening shipments to the U.S. The Cabinet Office lowered its outlook for exports, noting that the pace of growth is moderating.

Recent data aren't encouraging. Industrial output rose 1.6% in August from July, about half the pace economists had expected, and Japanese machinery orders fell 14% in August from July to a 15-year low. But economic output grew at an annualized rate of 2.6% in the April-June quarter, snapping a four-quarter string of declines.

Japan's stock market continued a slide that intensified a week ago, after the naming of a new banking chief, Heizo Takenaka. The Nikkei 225 Stock Average dropped 169.56 points yesterday, or 2%, to 8539.34 -- its lowest close since June 1983.

Mr. Takenaka's appointment initially cheered investors. He champions a cleanup of the bad-loan-hobbled banking sector, a step that economists have been urging on Japan for a decade. But analysts are also urging Japan to ease the pain that is bound to follow a purge of bad loans -- bankruptcies of delinquent corporate borrowers, layoffs and a blow to consumer sentiment -- with tax cuts, extra government spending and looser credit. Yet in a pattern seen repeatedly in recent years, the administration of Prime Minister Junichiro Koizumi hasn't come out with a comprehensive approach to the economy's ills.

Instead, the finance minister blamed the messenger, Japan's news media. "Weekly magazines have written that financial institutions will fail and that there will be major panic, and they even named companies, which is completely unacceptable," Finance Minister Masajuro Shiokawa said at a news conference yesterday. "Because of such irresponsible, speculative reporting, the market is not moving in a natural way."