Asian crisis means months of worry

The frightening thing about the crisis in the economies of Japan in particular and the Far East in general is that everyone is in uncharted territory. The Japanese economy is not facing a uniform slump of the sort classical Keynesian economics explains how to deal with. The Japanese economy is stagnating because of a collapse […]

The frightening thing about the crisis in the economies of Japan in particular and the Far East in general is that everyone is in uncharted territory.

The Japanese economy is not facing a uniform slump of the sort classical Keynesian economics explains how to deal with. The Japanese economy is stagnating because of a collapse in property prices and consumer confidence being at an all-time low. The government is in the bind that if it tries to bail out troubled institutions through higher taxes it will only make things worse.

No one knows, in particular, how Far Eastern investment in the UK will be affected. You can argue the case both ways: the more obvious version is that overseas investment will be curtailed, especially by the more recently arrived South Korean firms such as LGI and Samsung, whose developments are still at an early stage compared with the more mature sites of Honda, Nissan and Toyota.

On the other hand, with the Japanese economy stagnating, it could make sense for the Japanese to step up local production in Europe and the US, whose economies are more buoyant, in an effort to increase market share – especially as they can by now fund expansion largely from local turnover.

The problem is that no one has been in this set of circumstances before. The knock-on effects from the Far Eastern banking crisis will continue to be felt around the world for months to come. It could be a bumpy ride.