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Monday, March 19, 2007

JAPANESE PERSPECTIVES

Advice for Japan as it returns to the jungle: Don't feed the animals


The Japanese economy is now a fully signed-up member of the global jungle.

This was not the case whilst it was suffering from the deflation malaise. During that time, the Japanese economy had no business making its way into such a ferocious place. It was in hospital hooked up to all sorts of life support systems. But now things are different. The economy may not be quite as robustly healthy as some like to claim, but at least it is not ill enough to be kept hospitalized.

Once out of hospital there is nothing for it to do but rejoin the rest of the world, where jungle warfare is rampant. And the jungle being what it is, one is bound to meet a lot of animals. Having spent such a long time in convalescence, however, the Japanese economy is finding most of the jungle's inhabitants to be weird and alien.

Take the vulture, for instance. Vultures have been denizens of the global jungle for quite some time. They are otherwise known as corporate raiders and activist shareholders. Or, alternatively, private equity companies and investment funds, if you are feeling diplomatic. The more biblically minded Germans prefer to call them locusts, but the vulture image is rapidly capturing the Japanese imagination.

Companies both large and small are frantically running for cover, lest they be gobbled up by these merciless birds of prey.

And then there are the three bears. They are to be seen in the company of an infant female of the human species who has gone under the name of Goldilocks since circa 1904, or so information from the Web tells us.

Bears also are no novelty in the animal kingdom, but with the coming of what has come to be known as the era of the "Goldilocks economy," they, too, may need to be seen in a somewhat new light.

Goldilocks is a sneaky little girl. She invades the three bears' home in their absence and eats their food, sits in their furniture and sleeps in their beds.

During the course of this escapade, Goldilocks discovers that the baby bear's porridge is just right for her -- not too hot and not too cold. The baby bear's chair is also the perfect fit, and its cot is neither too hard nor too soft.

Perfection made in heaven descends upon Goldilocks. Until the bear family comes home and throws her out. Or gobbles her up. Or tears her to pieces. The variations are endless, depending on how gruesomely the storyteller likes to tell it.

Until the recent global stock market selloff, everybody was focused on the first half of the Goldilocks story, in which everything turns out just right. Celebration of the Goldilocks economy was in full swing, just at the same time Japan was putting a tentative foot back into the global jungle.

But the stock market turmoil late last month is an indication that the bears are about to come home. The Japanese economy needs to return to complete health and normality quickly, before the bears actually descend upon it in full force.

And that complete return to health will not happen unless and until we discard the two life support systems we are still relying on to this day: ultra-low interest rates and the ultra-cheap yen. We seem to have smuggled those out of the hospital when we were discharged.

That is cheating. We need to be able to function without such things. With vultures circling above and vengeful bears on the roam, the Japanese economy needs all the health and underlying strength it can lay its hands on.

It is time for both interest rates and the yen to return to more normal levels.

Noriko Hama is an economist and a professor at Doshisha University Graduate School of Business.


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