Is Japan finished? No: just in recession

ANYONE panicking about the "collapse" of the Japanese economy, which the head of Sony, Norio Ohga, predicted this week, would do well to save up their money, jump on a plane, and pay a visit to the centre of the upheaval and chaos - the doomed city of Tokyo.

Squeeze on to the busy but immaculate subway and travel to the area known as Shibuya, full of restaurants, amusement arcades and department stores. Look at the prices on the shelves, observe the weekend crowds, and notice the schoolgirls in their pounds 800 outfits, with Fendi handbags and mobile phones. Ask yourself whether this looks like a city on the verge of meltdown.

Things are going badly for the Japanese economy but, when judging Mr Ohga's apocalyptic remarks, some perspective is necessary. For all the grim news, the situation in Japan is not even close to that of Indonesia, Thailand and South Korea, which have been driven to turn to the International Monetary Fund for rescue. The situation in Japan does not even compare to the economic suffering of Western Europe during the 1970s and 1980s.

Nobody would disagree that Japan is in trouble, and that the actions of its prime minister, Ryutaro Hashimoto, who is in London this week for talks with Asian and European counterparts, have done little to improve the situation.

The Nikkei share average in Tokyo fell by another percentage point yesterday after bigger tumbles earlier in the week and the yen weakened against the dollar to its lowest rate since 1992.

According to an official survey, businesses are gloomier than they have been for four years, and yesterday the credit agency, Moody's, changed its assessment of the Japanese economy from "stable" to "negative".

This is shocking to the Japanese. But to the rest of the world it is not so surprising that after more than 20 years of continuous growth the country is moving into a full recession.

When Mr Ohga talks of a collapse he means no more than this. When he spoke to Japanese reporters, a few hours before his speech in English, he spoke not of "collapse", but of "stalling" - a significant difference.

Recessions are unpleasant, but only by Japanese standards does Japan's present plight justify the use of a word like collapse. Unemployment is reaching undreamt of heights at 3.6 per cent, even though in Germany that figure would be hailed as a triumph. Yet, when trying to dramatise the gravity of Japan's plight, Mr Hashimoto warned that "unemployment numbers are on the verge of rising to levels comparable to those in Europe".

A few years of economic discomfort may even benefit Japan in the long run, by carrying off weak companies and clearing the field for the tougher specimens.

This week, Japan launched its so-called "Big Bang", a five-year programme of financial deregulation to improve efficiency among banks and stockbrokers. It is a bold plan and Japan's finance companies and bureaucracies would never have been submitted to such radical steps if the economy were not in such a shaky state.

This is not to underestimate the importance of Japan's difficulties. Mr Ohga spoke of his fears for a deflationary spiral, and compared Mr Hashimoto to Herbert Hoover, the American president of the Twenties who was blamed for failing to stop the Great Depression.

The stricken economies of east Asia need happy, confident Japanese consumers to buy their exports. Without them, the pain afflicting Indonesia will take far longer to abate. It is there, if anywhere, that Japan's recession will cause true collapse, not in rich but gloomy Japan itself.

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