South China Morning Post

May 7, 1998

Japan “Key” to Global Rebound

by Jake Lloyd-Smith

Asia’s salvation lies in Japan, but the world’s second-largest economy must collapse before the region’s prospects will brighten, Princeton Economics International says.

The global strategic adviser, which has no connection with the prestigious United States university, said international capital would avoid Asia until Japan had turned itself around.

Chairman Martin Armstrong said “if Japan has this big problem, then Asia is still a problem” in the eyes of those directing capital flows.

“Once Japan goes, you are going to see a fair amount of interest [in the rest of Asia],” he said.

The collapse, which would come sometime in the next 12 months, could push the yen down to 200 to the US dollar and endanger Hong Kong’s currency-board system, he said.

Princeton has made a name for itself over the past 27 years with its bold market calls founded on number-crunching by its banks of computers, which analyse the world economy.

“The [Japanese] banks are the largest stockholders in Japan,” Mr. Armstrong said.

“As the economy spirals down, as the stock market spirals down, the banks get more insolvent, the more insolvent they get, the less they lend, the less they lend, the more the economy spirals down. It’s a never-ending cycle.”

The implosion would force Japanese policy-makers to reform and open the economy.

“I see the [Hong Kong] peg tied up more in the problems in Japan than a lot of people suspect,” he said.