Japan's finances 'close to collapse'

By Staff and wire reports

Japanese Finance Minister Kiichi Miyazawa warned Thursday its finances are on the brink of disaster.

Miyazawa told a parliamentary committee that the country's finances "are very close to collapsing."

Miyazawa blamed the country's burgeoning public debt. Japan's $5.4 trillion public debt equals 130 percent of its gross domestic product. This is a higher ratio than any other leading industrial democracy.

His comments caused the yen to slump against the dollar. It was trading just below the psychologically important 120 barrier Thursday afternoon, at ¥119.96 to the dollar.

They also amounted to a public admission that the government can no longer afford to spend itself out of an economic slump.

Japan's ruling coalition, led by the Liberal Democratic Party, is expected to announce an economic-stimulus package tomorrow.

The dollar traded as high as 120.40 yen, its highest level since July 1999, after Miyazawa's comments.

But Japan's central banker prompted a rally in the yen later in the day, with a conflicting comment.

Bank of Japan (BOJ) Governor Masaru Hayami told parliament that a strong currency was in Japan's interest.

Hayami also voiced his distaste of a return to zero interest rates. Many market watchers have called for such a move. The BOJ abandoned zero interest rates last August.

Hayami said zero rates "basically deny the rules of capitalism." There is speculation he will resign if forced to return rates to zero.

'Backdoor method' to weaken yen

Miyazawa denied that he wanted to push the yen lower to induce inflation. Comments he made Wednesday were seen as endorsing a drop in the yen.

"By no means did I intend to imply that we were considering a policy of driving down the yen," he told parliament Thursday.

But Ryan Shea, international economist at Bank One, said Miyazawa's comments were a "backdoor method" of weakening the yen.

"The market is not particularly surprised at what Miyazawa is saying, but what is interesting is that he is prepared to say it so frankly," Shea said.

A weaker yen also helps exports. Many economists see stronger exports as key to Japan's attempts to rebound.

Weak industrial-production figures last week showed Japan's economic slump is deepening. Export numbers were particularly disappointing.

Experts had been hoping Japan started a recovery late last year. But it is now evident Japan's economy is contracting in 2001.

Despite encouraging economic numbers Thursday, hopes are not high for Japan's gross domestic product figures, due Monday.

Analysts also suggest the tankan, a quarterly measure of corporate confidence, may show a decline when next released April 2. That would add pressure for the BOJ to lower rates.

The benchmark Nikkei 225 closed down Thursday, despite three up days for U.S. markets. It dropped 0.58 percent, at 12,651.

The broader Topix finished flat at 1,236.

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