Japan announced its first year of economic contraction in two decades Friday, confirming that it is in a severe recession and deepening fears that its woes will worsen Asia's economic crisis.
The rest of Asia had been counting on Japan - the region's largest economy - to lead the way out of financial despair. Japan, however, has found itself unable to pull out of a stubborn eight-year downturn that twice before drove its economy into recession.Embattled Prime Minister Ryutaro Ha-shi-mo-to easily survived a no-confidence motion launched against him by opposition parties over his handling of the country's ailing economy.
The 500-seat Lower House of parliament defeated the motion Friday by a vote of 273 to 207, with 20 votes not cast. The motion accused Hashimoto of poor management of the economy and failing to address political corruption following recent financial scandals involving bureaucrats.
The country's Economic Planning Agency said Japan's gross domestic product for the fiscal year ending March 1998 shrank by 0.7 percent, the first full year of economic contraction since 1974.
Quarterly figures showed what many economists had already feared: Japan is in a full-blown recession.
The agency said gross domestic product, the sum of all goods and services produced in Japan, fell by a steeper-than-expected 1.3 percent in the January-March quarter. That follows a drop of 0.4 percent - revised downward Friday from an earlier estimate of 0.2 percent - in the previous quarter.
Two back-to-back quarters of economic contraction is the generally accepted definition of a recession.
While Japanese officials avoided the word "recession," they admitted the economy is worse than they previously had maintained.
"The data illustrated the severity of the economy," said Shimpei Nukaya, the top-ranking bureaucrat at the Economic Planning Agency.
Prospects aren't bright for the current year, although the EPA is standing by its 1.9 percent growth forecast. While economists say an upcoming $116 billion stimulus package will help, Japan has shown no signs of taking the painful steps needed to cure its economic woes.
"The package won't be enough to turn things around," said Chris Calderwood, chief economist at the Tokyo branch of Jardine Flem-ing Securities. "This year will be a growth crater."
Asia's battered financial markets had been showing their first signs of recovery since the region's economic crisis began last summer.
But now pessimism about Japan's economy has driven the yen to an eight-year low against the U.S. dollar. That has put renewed selling pressure on currencies of other Asian countries at a time when they are concerned their exports may not remain competitive in key markets such as the United States.
It was just such a sell-off of the Thai baht in July 1997 that triggered Asia's regional crisis.
Asian stock markets ended the week mixed, but the key index in Seoul tumbled 8.1 percent Friday - its biggest ever one-day fall - on fears that the falling Japanese yen could wreck the South Korean economy.
In announcing the GDP figures, an official for the Economic Planning Agency said falling demand for Japanese exports in Asia, Japan's largest market, was one of the biggest factors behind the poor showing.
Exports dropped by 3.8 percent in the January-March quarter. Domestic consumption, which had fallen by 1 percent the previous quarter, edged up 0.1 percent.
But economists agree most of Japan's problems are its own doing. Unwise lending by Japanese banks a decade ago has left them burdened with an estimated $531 billion in failed loans.
Writing off those bad loans has absorbed most of the excess cash in the Japanese banking system, keeping it from being used as new loans to business.
To make matters worse, Hashimoto embarked on a program to raise taxes and balance Japan's federal budget just as its economy was showing its first sign of recovery since 1990. The tax increase squelched consumer spending.
The biggest danger from Friday's figures may be psychological.
Economists say the danger is that all this gloom and doom news may become a self-fulfilling prophecy: worried factory managers could cut back on production and hiring and nervous consumers could cut back even further on spending. That could make the economy go from bad to worse.