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Friday, 7 December, 2001, 12:56 GMT
Q&A: Japan's economic problems
Construction companies are collapsing with multi-billion dollar debts. The economy is shrinking, the fourth recession in a decade is well advanced and after throwing money at the problem for years, Japan is up to its ears in debt. How has a country once seen as the ruler of the 21st century come to such a pass? And what, if anything, can the government do about it?

Why is Japan's economy in decline?








What might happen next?

Japan has been seriously affected by the world economic slowdown.

In the past, exports by its large and successful companies have helped sustain its economy, but with the US in recession, this is much more difficult.

And the day of reckoning for the banking sector cannot be prolonged much longer, with banks being forced finally to declare their non-performing assets.


The combination of these factors, with rising unemployment and falling prices, has led many analysts to predict a deepening recession in Japan.

The prediction appears to be coming true. The latest figures show that in the 12 months to September the economy shrank 2.2%, and few would bet on any early improvement.

What has the government tried to do?




The spending has kept them afloat; without it many might already have gone bust. As it is, the first domino fell in early December, as Aoki Construction went under with debts totalling 522bn yen ($4bn).



And that could prove politically painful.

Can lower interest rates help?

Japan already has near zero interest rates.

The Bank of Japan charges 0.25% as a base rate.




What are the prospects for reform?




And cutting government spending could jeopardise the increasingly fragile political hold on power of the ruling Liberal Democrats.

Admittedly, the current Prime Minister has an advantage denied his predecessors: he is popular.

The incumbent, Junichiro Koizumi, appears different from the rest of his party. He speaks clearly, he has told the electorate that recovery will be a deeply painful process, and that resonates with a country sick to the back teeth of incompetence and time-serving at the top.

But there are many who think that for all the words nothing will actually be done. Even if Mr Koizumi himself is a real reformer - and that is far from certain - he could (and usually is) hampered by others in his own party.

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