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Thursday, May 13, 2010

Greek crisis to hit Japan indirectly


Staff writer

The Greek financial crisis is unlikely to wreak havoc on the Japanese economy, although a strengthening of the yen as a result of the euro's depreciation will inevitably affect exports bound for Europe, according to some economists.

News photo
Crisis mode: Finance Minister Naoto Kan speaks to reporters at the ministry Monday after the Group of Seven issued a joint statement on the Greek financial crisis. KYODO PHOTO

But they caution that Japan shouldn't regard the crisis as just something happening on the other side of the planet and the nation must work hard to rebuild its finances, which are actually worse than Greece's.

"The European Union is not at all a major market for Japan," said Hiromasa Kubo, a professor at Kobe University who specializes in European economics. "Even if exports (to EU nations) decline, that won't have a big negative impact on the Japanese economy as a whole. I am more fearful of China stumbling."

According to Finance Ministry statistics for last year, EU nations bought just 12.4 percent of all of Japan's exports. China meanwhile accounted for 18.8 percent of the total, and Asia as a whole for 54.1 percent.

Kubo pointed out that because China is a far more important trading partner, it is a cause for relief that the Chinese economy is highly unlikely to be damaged by the latest European crisis.

Norio Miyagawa, a senior economist at Shinko Research Institute, agrees.

"Considering the share of (exports) to the EU, (the crisis in Greece) will not have a decisive impact on the Japanese economy in terms of trade," he said.

Some analysts meanwhile are concerned about the rising yen damaging exporters, and if global financial markets stumble, Japan will be negatively affected.

"Profitability of exports to Europe will worsen, especially due to the yen's appreciation against the euro," warned Yasunari Ueno, a chief market economist at Mizuho Securities.

Ueno said the austerity measures taken by European countries will slow or reduce Japanese exports to the euro zone and global instability in stock prices could meanwhile affect the mind-sets of corporations and consumers.

He said that even if the European crisis is resolved, the possibility is high that stock prices will fall because upcoming U.S. economic indicators could be weak, which would negatively affect the Japanese economy.

Hideo Kumano, a chief economist at Dai-ichi Life Research Institute, shares this view.

"The financial situation will destabilize as stock prices fall or the yen strengthens," Kumano said. "Through the financial route, damage will likely be done (to personal consumption)."

As the Greek crisis unfolds, experts agree now is the time for Japan to rebuild its finances, the worst among major industrial economies.

"The Greek problem may be happening elsewhere, but Japan could eventually find itself in the same kind of crisis," Kubo of Kobe University said, adding Japan should come up with a blueprint to solve its debt problems.

According to data from the Organization for Economic Cooperation and Development in December, Japan's national debt was estimated at 189.3 percent of gross domestic product last year and is projected to be 197.2 percent this year.

Greece's debt meanwhile was estimated at 114.9 percent of GDP last year and is projected to be 123.3 percent this year.

Bank of Japan data show that 93.9 percent of Japanese government bonds are held by entities in Japan, including banks, insurers, pension funds and households, so there is little danger of a massive selloff. Ueno of Mizuho Securities, however, warns against overconfidence. "This situation will not last forever. (The government) should strictly refrain from easily issuing more" bonds.

Kumano of Dai-ichi Life Research Institute holds the same sentiment.

"If (Japan) goes on doing nothing, rating agencies may regard Japan's condition as extremely bad," he said, urging the government to quickly get to work on rebuilding its finances. "If (political parties) are paying lip service by claiming they will not hike taxes in their election policy pledges, the rating of Japan will be extremely severe."



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