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JAPAN DOOMSDAY FEARS PREMATURE

R Taggart Murphy

Asia Times, November 18, 2009

Many people in the financial world - not all of them kooks - have managed to convince themselves that Japan is hurtling towards some kind of fiscal doomsday, and that no matter what the Yukio Hatoyama government does or doesn't do, it's already too late - Japan, they say, will be defaulting on its pension obligations. Or defaulting on its debt. Or will find itself unable to halt a string of bank failures that will bring the financial system to its knees. Or some combination thereof.

Robert Samuelson picked up on this scuttlebutt in a November 1 article in the Washington Post. He warned Americans that they are at risk of following Japan into an abyss of debt that will increasingly "constrict governments' economic maneuvering room". He refers to a JP Morgan Chase study of Japan's fiscal situation and seems to have relied on it for much of what he had to say about Japan. Jim O'Neill, head of global economic research at Goldman Sachs, has for months been predicting that Japan's fiscal woes would translate into a weaker yen. I myself was talking recently to a hedge fund manager who was speaking of Japan's hitting a "debt wall".

Topping off the hysteria about Japan was a piece in Britain's Daily Telegraph on November 1 by Ambrose Evans-Pritchard. Sprinkling his piece with quotes from people such as the former International Monetary Fund chief economist Simon Johnson ("a real risk that Japan could end up in major default") and various finance gurus ("the sums are gargantuan," " the situation is irrecoverable," "incredibly dangerous," "shocking," "horrible," "the risk of a downward spiral"), Evans-Pritchard works himself up into a fever pitch of indignation, accusing the Japanese government of "sitting frozen like a rabbit in the headlamps" and concludes with the obligatory warning for the rest of us about our profligate, debt-addicted ways.

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