Japan recession a risk, credit crisis drags on-Roach

TOKYO, May 30 (Reuters) - The subprime crisis is far from over and a slowdown in the U.S. economy could help knock Japan into recession, Stephen Roach, the Asia chairman of U.S. investment bank Morgan Stanley (MS.N), said on Friday.

"I would not rule out the possibility of renewed recession in Japan," Roach said at a seminar hosted by Morgan Stanley in Tokyo. "I'm a believer in globalisation, not a believer in decoupling. You've gotta pick one. You cannot have it both ways."

Roach said the global credit crisis stemming from troubles in the U.S. subprime loan market had just started "stage two" of a 3-stage process that will likely see a deeper impact spreading from the U.S. to other economies.

He pointed to data showing the U.S. consumer spent about $9.6 trillion last year, or six times the combined spending of consumers of China and India, to underscore the influential role the U.S. economy still plays in driving global growth.

He said the worst of "stage one" of the credit crisis that primarily hit financial markets may have passed, marked by the failure of Bear Stearns in mid-March and the provision of liquidity by the U.S. Federal Reserve.

Stage two will see troubles in the financial market having a real impact on the U.S. economy, Roach said.

"Stage two is only now just underway. The asset dependent sectors of the U.S. economy, especially U.S. consumption, are only just starting to adjust. There's plenty more to come."

"Stage three has barely begun. The linkages through trade flows, through capital flows, through information flows, through labour flows between the U.S. and the rest of the world. These are the linkages of globalisation." (Editing by Richard Hubbard)