ECONOMIC OUTLOOK:

The Japanese Economy:

Capital: Tokyo

Population: 126 million

Major Religions: Shintoism, Buddhism

Main Exports: Vehicles, Computer Parts, Chemicals, Scientific Instruments and Watches

Main Economic Data
Time (t)	Real GDP Growth GDP (%)	Unemployment Rate (U) (%)	Inflation Rate (p) (%)
1998	-	-	-
1999	-	-	-
2000	1.7	4.7	-
2001Q1++	0.1	-	-
2001Q2+	-3.2	4.9 (Jun); 5.0 (Aug)	-0.5 (Jun)
2001Q3+	-0.7	5.3 (Sept)	-0.8 (Sept+)
2001Q4	-	5.8 (Oct)	-0.7 (Oct+)
Other Economic Data
Earnings Growth (%)		0.9 (Jun/2001+)
GDP per capita (US$/Year)		32,030
Industrial Production (%)		-2.8 (Jul/2001++); -2.9 (Sept/2001+); -0.3 (Oct/2001++)

+ Compared with the same month/quarter a year earlier

++ Compared with the previous month/quarter

Interest Rates (p) 2001
Month	(%)	DW (%)	P (%)	S (%)
-	-	0.1%(D)	-	-

DW = Discount Window; P = Prime Lending Rate; S = Savings Rate

l The collapse of "asset prices" in Japan - with shares worth only 25% of their value 10 years ago and property more than halved - has also made consumers cautious.

l The Japanese economy has fallen into what John Maynard Keynes described the "Liquidity Trap" even if the Bank of Japan has cut the interest rate to zero. Lack of aggregate demand as consumers and businesses are unwilling to spend. The ageing problem has also led less people to push the economy growing. (Paul Krugman)

l Some economists (e.g. Paul Krugman) have suggested that the Bank of Japan should set a positive 'inflation target' of 3-4% in order to stimulate its economy. That is, by increasing the money supply. However, the bankers are nervous in adopting such policy because they have feared that expansionary monetary policy will lead to higher asset prices. And the burst of the asset price bubble has caused the Japanese economy into recession for 10 years.

l The Bank of Japan returned to the "zero-interest" policy in March.

l After years of immense spending on public works, Japan has a debt of 130% of GDP.

l The Japanese economy shrunk 0.8% in Q2 of the year. A further contraction in Q3 will throw the economy into its fourth recession in a decade. Unemployment has topped 5.3% in September, the highest since the government began keeping track in the 1950s.

l Some Western banks attempted to take advantage of the low Japanese interest rates several years ago, borrowing money in Japan and lending it to other Asian businesses. That turned out to be one of the causes of the Asian financial crisis of 1997-98, when many of these banks faced huge losses after many Asian currencies collapsed and lost up to 80% of their value.

l Japan's unemployment rate posted its biggest rise since 1967 to a new post-war high of 5.3% in September, reflecting diminishing labour demand as the severe downturn in the world's second-largest economy takes hold after a decade of economic stagnation.

Sources: BBC; FTMarketWatch; iWon; Kyodo; Washington Post