Japan backs public works program Miyazawa responds to economic pressure

April 02, 1993|By New York Times News Service

TOKYO -- Facing a stagnant economy and heavy pressure from the Clinton administration to reduce Japan's huge trade surplus, Prime Minister Kiichi Miyazawa pledged yesterday to push for a huge new public works program to get the economy rolling again and to rescue a battered financial system.

Mr. Miyazawa said at a news conference that the plan, which would include heavy spending on telecommunications "superhighways" and computers for schools, would be larger than last year's supplementary budget of 10.7 trillion yen, the equivalent of $93 billion. There has been speculation that the plan could run as high as $130 billion.

The announcement helped send Japanese stock prices soaring. The Nikkei index of 225 issues closed up 507.64 points, or 2.73 percent, at 19,099.09, the highest level in nearly a year.

(The Nikkei continued its surge in early trading today, rising 265.03 points, or 1.39 percent, to 19,364.12.)

"At this point, you can't find anyone who is willing to bet against the government," said Jesper Koll, an economist here with S.G. Warburg Securities.

The timing of the announcement was favorable, because Mr. Miyazawa plans to visit Washington in two weeks for a summit meeting with President Clinton at which he reportedly hopes to deliver evidence of a stronger economy. The United States has pressed Japan to revive domestic demand so the country will export less and import more, reducing its enormous trade surpluses.

On the Nikkei, the day's standout was Nippon Telegraph and Telephone, or NTT, the government-controlled telecommunications giant. Its price rose 100,000 yen, the daily limit, to 977,000 yen a share, or $8,500.

NTT's explosive rise in recent weeks -- it has soared nearly 40 percent in a month -- is regarded as the most tangible sign of the government's efforts to increase share prices.

The government has suggested that its new public works program is likely to benefit NTT by laying a network of fiber optic cables across Japan. Investors, many of them government-controlled pension funds, have responded by bidding up the company's shares.

Some analysts warned that the prospects of a new economic stimulus and a recovery in the depressed stock market were still fragile.

"We still have some worries about the economy's recovery," said Yuichi Matsushita, a stock market strategist in Tokyo with Nikko Securities. "It is not certain yet. But psychologically there is some improvement."

Economists say that Japan's economy grew by 1 percent or less in the fiscal year that ended March 31 and that many indicators, like consumer spending and corporate investment, remain anemic. Officially, the government is forecasting growth of 3.3 percent in the fiscal year that just began, but private forecasts range from less than 1 percent to 2.5 percent.

The outcome of the stimulus plan could have a big political impact on Japan because of the pressure being applied by the Clinton administration. The president and various U.S. officials have issued threats and exhortations to get Japan to reduce its record trade surpluses.

The two countries have permitted the dollar to decline against the yen, which makes Japan's exports more expensive and makes it cheaper for Japanese to import American products. The dollar fell yesterday in Tokyo to 114.50 yen, a postwar low.

In addition, the Clinton administration has urged Tokyo to take steps to end Japan's recession.

Many economists warned that the plan promised yesterday was not as dramatic as it seemed.

"It's always the same with these packages," said Susumu Kato, chief economist here with CS First Boston (Japan).

"The government just includes everything, which makes the numbers look large."

Added Mr. Koll of S.G. Warburg, "Once again, the government is doing an excellent job of promoting their new package even BTC before there's a formal package. They are giving the impression of a whole New Deal in Japan.

"What the government says now is that it is not just going to move some dirt and build roads and bridges, but that it'll build the highway of the 21st century, the telecommunications optic fiber highway."

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