So far, the United States has been largely immune from the dismal economic troubles plaguing Asian nations. While that may continue, Americans ought to keep a wary eye on the troubles gripping Japan these days.
Japan's is the key economy in the once powerful Pacific Rim. Its health would mean a healthier region, which would, in turn, keep the U.S. economy from falling into a recession.Prime Minister Ryutaro Hashimoto resigned Monday because the people lost faith in his ability to improve the economy. Indeed, he was never viewed as an economic specialist, which made him an odd choice for the job more than two years ago. Japan already was suffering from a recession at the time.
However, before he resigned Hashimoto had taken bold steps. He announced a $127 billion package of reforms that include tax cuts, new government spending and a plan for cleaning up bad debts. The plan appears to be sound, and the Clinton administration should do all it can to persuade Japan to approve it. A sound strategy and the appearance of stability are essential to Japan's recovery. Instability and the lack of a plan could be disastrous.
That was evident in the way Japan's Nikkei Stock Average acted immediately following Hashimoto's resignation. At first, it fell 280 points, and the yen fell sharply against the dollar. But then, as some investors started gaining confidence in lawmakers' ability to institute Hashimoto's plan despite the resignation, the market rebounded.
The plan's future, however, is in doubt. Hashimoto's Liberal Democratic Party remains in power, but the party's losses in weekend elections may make it more difficult to muster the legislative support needed to pass the plan. The most likely successor to Hashimoto, Keizo Obuchi, also is seen as someone weak on economic issues, which doesn't bode well for new, innovative solutions.
Meanwhile, unemployment is at a record high, Japanese banks are suffering from a tangle of bad debts and bankruptcies continue to climb. Those are problems that seem distant and remote from U.S. soil. An economic turnaround in Japan would keep it that way.