Japan's economy actually contracted a bit last quarter, but most observers are still betting that the nation will avoid a true recession. Economists at Shearson Lehman Brothers Inc. are not so sure, however. They fear that falling land prices are exerting a powerful effect on the spending proclivities of Japanese consumers.
Land is by far the largest component of Japanese households' net worth, accounting for more than half of their wealth, compared with only 20% of assets held in the form of cash and deposits and 6% in direct stock-market holdings. With land prices down 10% in 1991 and another 10% so far this year, Japanese consumers appear to be retrenching. And if consumption actually falls as households try to rebuild lost wealth, warns Shearson Lehman, the risks of a real recession will grow.