Sub-prime crisis could knock Japan into recession

Business Times - 31 May 2008


Sub-prime crisis could knock Japan into recession

(TOKYO) The sub-prime crisis is far from over and a slowdown in the US economy could help knock Japan into recession, Stephen Roach, the Asia chairman of US investment bank Morgan Stanley, said yesterday.

'I would not rule out the possibility of renewed recession in Japan,' Mr Roach said at a seminar hosted by Morgan Stanley in Tokyo. 'I'm a believer in globalisation, not a believer in decoupling. You've gotta pick one. You cannot have it both ways.' Mr Roach said that the global credit crisis stemming from troubles in the US sub-prime loan market had just started 'Stage Two' of a 3-stage process that will likely see a deeper impact spreading from the US to other economies.

He pointed to data showing the US consumer spent about US$9.6 trillion last year, or six times the combined spending of consumers of China and India, to underscore the influential role the US economy still plays in driving global growth.

He said that the worst of 'Stage One' of the credit crisis that primarily hit financial markets may have passed, marked by the failure of Bear Stearns in mid-March and the provision of liquidity by the US Federal Reserve.

Stage Two will see troubles in the financial market having a real impact on the US economy, Mr Roach said.

'Stage Two is only now just underway. The asset dependent sectors of the US economy, especially US consumption, are only just starting to adjust. There's plenty more to come.' 'Stage Three has barely begun. The linkages through trade flows, through capital flows, through information flows, through labour flows between the US and the rest of the world. These are the linkages of globalisation.' - Reuters

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