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"Japan Is Not Out of the Woods Yet"
Market Q&A with Andrew Shipley, Schroders Japan
October 20, 1999
Web posted at 11:30 p.m. Hong Kong time, 11:30 a.m. EDT

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Also in this interview:
TIME spoke with an analyst at ABN Amro about Jakarta's topsy-turvy trading day

Today has been so rich with headlines that I couldn't bear to stay in one market. (And most analysts I spoke with couldn't bear to be bothered for more than five minutes.) Speaking of bears, the first economist I spoke with today was Andrew Shipley of Schroders Japan.

Q: Carlos Ghosn, the brash Frenchman who Renault dispatched to shape up inefficient, flabby Nissan (of which it owns 37%), is all over the news today following the announcement of his restructuring plan for the Japanese automaker. (Read Peter McKillop's take on the overhaul, which will cut 21,000 jobs and streamline the tangled web of suppliers that flourished under the keiretsu system.) Ghosn told Business Week that "there is no sense of urgency [in Japan]. You should come to the headquarters, and the walls should be on fire." So, is there enough urgency in Japan?
A: I think that's a very good question. For the most part there isn't. The Nikkei is up 25% for the year, the government is very popular and the yen is strengthening. I don't think there is a real sense of crisis.

CNNfn: Asia Surges on CPI Relief
HK soars 3% as inflation data soothes; Japan up 1.6%; Jakarta swings on vote drama
- Wednesday, Oct. 20, 1999

Market Q&A: The 'Bitter Truth' about Hong Kong's Property Market
With Michael Green, property strategist, Donaldson, Lufkin & Jenrette
- Tuesday, Oct. 19, 1999

Asia Buzz: Lean and Mean
Finally, Japan wakes up to economic reality
- Wednesday, Oct. 20, 1999

Asia Buzz: Blurry Vision
When content providers link up with Net ad networks, who can see straight?
- Tuesday, Oct. 19, 1999

The story behind today's news from the editors of Asiaweek

Daily Briefing
Today's headlines from across the region

Q: Should there be?
A: Definitely. The Japanese are living on borrowed time. The stock market is up due to capital flows from an overheated market in the U.S. The government is popular largely because of massive public works spending which will eventually bankrupt the country. The export-led recovery is being threatened by a possible slowdown in the U.S. and the strong yen. All this suggests to me that rather than feeling like the worst is over people should realize that Japan is not out of the woods yet.

Q: Business sentiment is on its way up, though. What do you make of that?
A: The pace of improvement is slowing. If you look at the closely watched tankan survey, for the fourth quarter it's only expected to improve eight points, as opposed to fifteen points for quarter three, and that forecast was based on a yen trading at about 113 to the dollar--it's significantly higher than that now. There is a need for more monetary and fiscal easing to bolster the recovery.

Q: Did the Bank of Japan "take steps to ease monetary policy" last week, as the Wall Street Journal's headline suggested? Or did the BOJ "leave policy unchanged," as the International Herald Tribune's headline put it? I'm no economist, but was the tweaking of policy--which Jesper Koll of Merrill Lynch said did not amount to a policy change--good news or not?
A: I think it was definitely a step in the direction of easing policy. Until last week the BOJ was quite adamant that it would do no such thing--BOJ Governor Masaru Hayami said he would resign before the government eased policy--and last week was definitely a much more conciliatory stance than before. I think this was a first step--they've already said they would consider purchases of short-term government debt, the next step is buying long-term debt as well.

Q: Is the keiretsu system being dismantled?
A: There's still a great deal of stock tied up in keiretsu arrangements--that is, arrangements that ... put a priority on business relationships [over the bottom line]. It has to change due to deregulation and the weakness in the economy, but it will take time.

Q: So in the coming weeks the Nikkei will...
A: Depends on New York. If the Dow falls there will be a lot of downward pressure on stocks here.

Q: Okay, issue #2. The Jakarta Composite soared more than 10% today on the news that President B.J. Habibie would not be re-elected, then ended flat when Gus Dur, rather than Megawati Sukarnoputri, was chosen President. Megawati's party won the most votes in the summer's elections, but she had been criticized for not reaching out to Islamic parties. What do you make of this topsy-turvy trading day? [TIME spoke with an analyst at ABN Amro in Jakarta who asked that we not print his name.]
A: Well, it rose because traders were taking a chance and betting that Megawati was going to win the election. This was not the worst-case scenario, of course; the good news is that Habibie is out.

Q: The news was announced late in the trading day. Even so, that was enough time for the market to end totally, utterly flat. Was this a panic or profit-taking?
A: I think it was all the day-traders who'd come in and taken a chance. There are a lot of people milling around Jakarta right now. So far tempers remain cool.

Q: So, the tone from here is... cautious?
A: Well yes, there are a lot of key appointments to be announced, and obviously everyone is still waiting to see whether the people who voted for Megawati are going to be destructive and riot, as we believed they would if Habibie stayed.

Q: Okay, last but not least, the big deal in Hong Kong is German telecom Mannesmann AG's possible buyout of Orange (of which Hong Kong's Hutchison Whampoa owns a 45% to 49% stake). Anyway, I'm confused. All the big property outfits are looking for ways to get into the tech sector or, the next-sexiest thing, telecoms. So why does Hutch gain 5% on news that it might be selling its telecom provider?
A: Well, that's why the feeling is that it's not an outright sale. Hutchison has spent a lot of money marketing the Orange name. We don't really know yet what the deal entails--it hasn't been announced--but we imagine it's going to be some sort of tie-up. It's too early to say whether it's a good deal or whatever, but one way or the other Hutch will extract a lot out of it. I don't think they're just going to cash in on it, though.

Q: The Hang Seng took a beating last week. It shed 6.2%.
A: Yeah, and even tech stocks have gone through a big correction, largely thanks to Wall Street. But there are a lot of companies flocking to get into technology, a lot of people launching tech companies, and there is a lot of excitement surrounding the opening of the second Growth Enterprise Market (GEM) board in November.

Interviewed by Maureen Tkacik/AsiaNow

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