While the economic turmoil in Asia started in the emerging markets of Southeast Asia this summer, anxieties have shifted to the so-called economic powerhouses. Today the Tokyo Stock Exchange's key Nikkei index closed at 15,836.36, its lowest level since July 1995. Courtis said Japan's banks no longer meet their international capital requirements when the Nikkei falls below 16,000. Much of these are in U.S. Treasury market. Both J.P. Morgan and Salomon Brothers have recently issued reports cutting their growth forecasts for Japan, saying the combined impact of a sales tax increase last spring and the general economic slowdown in Asia was hitting Japan far harder than anticipated.
Domestic demand is down.
Exports to Asia, which account for almost 45 percent of Japan's exports, are down too. And bankruptcies are surging, creating more strains on an already unhealthy banking system. Japan's economic outlook has deteriorated. Western economists also seem surprised that the Japanese government has continued to pursue a tight fiscal policy of cutting spending and so far has resisted calls for a major corporate tax cut or other fiscal stimulus. With dire predictions increasing, disputes within the government over the economy are becoming more public.