View from City Road: Take long-term view of investment in Japan

The worst may be over for Japan. The latest economic stimulus comes just as the impact of earlier interest-rate cuts is beginning to have an effect. There are signs that destocking is at last coming to an end and confidence is growing that the public spending packages of 1993 will begin to feed through in the next few months.

But emerging from the trough will not be easy. Just as in the US and the UK, high debt levels are likely to keep the recovery sluggish through 1995.

The package is worth pounds 107bn, one-third of which is from income tax cuts and a small fall in corporation tax, staggered over the summer and autumn and backdated to 1 January. The reductions look big enough to underpin consumption.

The rest of the package is in the form of further public spending increases and low-cost loans - badly needed in an economy that still shows signs of a credit crunch.

However, given the pressures of an ageing population and drooping tax revenues, Mr Morihiro Hosokawa, the Prime Minister, caved into pressure from the Ministry of Finance, and raised the 3 per cent consumption tax to 7 per cent - although from 1997. Unfortunately, this has split the coalition cabinet and the final shape of the package may not be clear until next week.

If all goes well, it will be bullish news. But confidence is still extremely depressed. A new analysis by DKB International points out that land prices, which play a key role in determining individual wealth, are still falling, lenders are reluctant and the job market is under pressure.

Lifetime employment may not have been abolished but is under threat. And the excess capacity of the late 1980s may depress investment for some time yet. The stock market is likely to recover from here, but investment in Japan should be a long game.