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Japan utters the unutterable 'R'-word: recession


TOKYO -- Japan, the locomotive that seemed unslowable only a year ago, enters 1992 experimenting with a word it's had to use only once before since World War II -- recession.

The "R"-word is one most Japanese think is used only in other countries. The only actual recession ever to interrupt Japan's postwar "economic miracle" began 18 years ago in 1973, when an economy still overdependent on imported oil was rocked by the Arab embargo.

This time the word "recession" slipped into public discourse almost unnoticed on Dec. 4, through the lips of Yasuo Katsumura, vice minister of the Economic Planning Agency.

He used it, of course, only to deny that Japan would have one.

"There isn't any recession in sight," he declared.

It was the first time in most people's memory that an official found Japan's economy weak enough to require a denial that there might be a recession.

Perhaps predictably, the effect of the denial has been to make the word reverberate ever since.

Yet President Bush, who is due here Jan. 7 for his first state visit, has repeatedly declared that his trip is about finding new markets for U.S. exports in order to create jobs for America's growing armies of unemployed workers.

His timing couldn't be worse.

Mr. Katsumura was speaking at a news conference at which the Economic Planning Agency announced that the economy slowed a 1.6 percent annual growth rate in the gross national product for the quarter that ended Sept. 30.

That was the slowest growth since the 0.4 percent annual rate of the quarter that ended June 30, 1989. Even so, it defied widespread predictions by private analysts that the quarter would show what economists choose to call "negative growth."

But Mr. Katsumura's remark brought into the open a word more and more business leaders and government and private economists had been debating over dinner and in boardrooms for more than two months.

"We cannot totally rule out the possibility of a recession -- under the U.S. definition of two consecutive quarters of negative growth -- during the current downturn," Credit Suisse said in its December Tokyo Investment Advisor, published the day after Mr. Katsumura spoke but printed a week earlier.

For the moment, the debate turns on whether this may turn out to be the quarter that ushers in a recession.

It is a portentous debate, not only for Japan but perhaps even more so for the rest of the world, especially the United States.

Japan itself shows no signs so far of mass unemployment or the other most severe features of recessions in most of the industrialized world.

In fact, the country's biggest labor problem continues to be a severe shortage of workers.

So far, any recession, if it turns out that Japan is entering one, is taking the form of drastically reduced overtime and marginally reduced annual bonuses for most workers.

For millions of Japanese, that has meant setbacks in retirement savings and other family goals, and less money for parties and gifts this New Year's season.

Japan's steady slowdown this fall has meant drastically reduced consumer spending estimates and the first cutbacks in corporate investment in more than a decade. That decline has, in turn, depressed demand for U.S. consumer goods and manufacturing equipment, both of which had been expanding their beachheads here for three years.

Slowing imports from the United States have, in turn, been a key cause of a return to exponentially growing Japanese surpluses, which had been abating in the two-way trade for more than two years.

Since Mr. Katsumura let the word "recession" pass his lips, his agency has edged steadily closer to adopting it.

The country is "no longer in an expansionary phase," the Economic Planning Agency said in a report published Dec. 26.

The report did not mention that the most common alternative to "an expansionary phase" is customarily referred to with a nine-letter word beginning with "r."

The next day, the planning agency eased the word one more step into the public's consciousness. It told Japanese reporters informally that it expected, "no deep recession."

The report also warned that the Bank of Japan's two-year tight-money policy, designed to wring out the excesses of the 1980s "bubble economy" and to stifle inflationary stirrings, needed to be "more balanced" in the face of a drastically slowing economy.

Japanese government agencies are usually more polite than that when they criticize each other in public.

But the Economic Planning Agency seemed determined to stress an idea that is already widespread -- if Japan has a recession, the blame will belong to Yasushi Mieno, the governor of the central bank. Mr. Mieno has doggedly lagged behind economists' and business leaders' predictions in bringing down the interest rates that he drove radically upward in 1989.

Three days after the Economic Planning Agency criticism -- on Monday -- Mr. Mieno lowered the benchmark rate for lending to banks by half a percentage point, to 4.5 percent.

The interest-rate cut, the third this year and the second in two months, surprised everyone. Few economists or business leaders had been predicting a move so soon.

The timing "reflects a sense of impending crisis on the nation's economic outlook within the government and the central bank," said Toshio Ito, chief economist at Sumitomo Bank.

More than a few Japanese analysts pointed to the Bush visit as a key to the timing of Mr. Mieno's cut, arguing that stimulation of Japan's economy is a powerful way to help U.S. companies find export markets here.

Mr. Mieno himself managed to avoid not only the "R"-word but also any explicit confession that he was worried about the economy.

But his words, like his action, let business leaders and economists clearly see -- for the first time -- that he was switching to active stimulation, after more than 2 1/2 years of taking the heat for high interest rates.

"We particularly kept in mind the fact that between January and March is when firms draw up their capital spending plans for the coming fiscal year," he said.

Plummeting capital investment has been as important in the slowdown as flagging consumer spending. Many business leaders have pointed directly or indirectly at Mr. Mieno's high interest rates when asked why they are curtailing investment, in a country that has made a point of outstripping the world in keeping ahead on new plants and equipment.

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