- The Washington Times - Thursday, February 28, 2002

TOKYO (AP) Prime Minister Junichiro Koizumi's long-awaited plan to end deflation and reverse a decade-long economic slowdown drew criticism yesterday as being short on specifics and noncommittal.
"It's window dressing," said Ryo Hino, an analyst with JP Morgan and Co. in Tokyo. "They are just leaving options open and making no decisions until they are backed into a corner."
"People want the government to make a formal commitment," Mr. Hino said.
Even before Economy Minister Heizo Takenaka announced what he called the government's new, "bold steps," Mr. Koizumi was on the defensive, pleading for time to carry out more reforms needed to revive the world's second-largest economy.
"This is a long-term battle. It's not a quick fix," Mr. Koizumi told reporters. "It's not a panacea, where once we announce it, we can say, hey, the problem is fixed."
The anti-deflation plan targets five major obstacles blocking recovery: wiping out banks' bad debt, shoring up the stock market, stabilizing the financial system, boosting credit to small businesses and encouraging consumer spending.
The plan also calls on the central bank to further ease monetary policy, authorizes the government's financial regulator to conduct special bank inspections and orders a loan-buying agency to speed its purchases of bad loans from banks.
But analysts said halting deflation a trend of tumbling prices is tricky, and criticized Mr. Koizumi's plan as vague. Past efforts to halt the trend have failed, leaving Japan stuck in a slump that has lasted more than a decade.
Mr. Hino said that until the government comes up with a way to spur consumer spending, any package of measures probably won't bring a sustainable turnaround.
Nearly a year after he swept into office on promises of an economic revival and an end to politics-as-usual, Mr. Koizumi has yet to deliver. His public-support ratings have plummeted, the economy has slipped into its third recession in a decade, and his political adversaries sense weakness.
Japan is the only industrialized economy that has had to combat deflation since the end of World War II.
Prices have been spiraling lower for more than two years, undermining corporate profits, slashing property values and increasing debt burdens all bad news for the country as it struggles through its third recession in a decade.
For the average consumer, deflation has significantly diminished the value of homes, raised the burden of paying interest on debts and discouraged people from splurging on cars or homes, because they know those items will be cheaper later.
For corporate Japan, deflation has cut deeper. Falling prices have depressed the value of factories and the worth of stock portfolios, and made it difficult to turn a profit.
Mr. Takenaka said that while recovery remained distant, the measures would address the economy's worst problems.
"The battle against deflation requires patience," he said. "We have to continue taking steps like these for the next two years."
To bolster Japan's sinking stocks, the plan promises stricter regulations on short-selling. Short-selling involves selling borrowed stock in a bet that the shares can be repurchased later at a lower price.
The plan also proposes to create a special fund to help many of the nation's cash-starved small- and medium-sized businesses get credit.


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