ECONOMY-JAPAN: Some Good Figures Buoy Hopes for Recovery

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Mar 1 2004 (IPS) - A dramatic jump in corporate productivity rates has raised hopes here that the long-awaited turnaround in Japan’s economy, the second largest in the world, has finally begun.

A dramatic jump in corporate productivity rates has raised hopes here that the long-awaited turnaround in Japan’s economy, the second largest in the world, has finally begun.

"There is hope. The worst is over. The economy is finally on the mend," says C H Kwan, senior economist at the Tokyo-based Research Institute for Economy and Trade.

After more than a decade in the doldrums, the government announced last week that Japan’s Gross Domestic Product grew 7 percent on an annualised basis in the October-December quarter in 2003.

The official statement linked the country’s high GDP to a rapid rise in exports to East Asia, including the South-east Asian region. The report showed that higher exports have also shored up capital investment by a healthy 5.1 percent increase in 2003 compared to the previous year.

Reflecting the good news, the Bank of Japan recently revised its projected Gross National Product growth rates to more than 3 percent from an earlier forecast of 2 percent last year.

During his visit last week, Horst Koehler, managing director of the International Monetary Fund (IMF), told reporters that he believes Japan’s economic recovery is sustainable.

"I do think it is sustainable," Koehler told reporters in Tokyo. "It is clear recognition from my side that there is progress in Japan in reforming the financial sector in getting down the numbers of non-performing loans," he said.

Koehler was referring to new reports that show the rate of dud loans against outstanding loans at major banks falling to some 6.5 percent of Sep. 30. This has led policymakers to believe that Japan can end its bad-loan problem by 2005 by cutting the ratio level by 4 percent.

Analysts contend the overall bright picture has boosted business confidence, which has in turn helped increase jobs and higher consumer spending. "As jobs grow, consumer spending, the sticky point in the current recovery, will pick up by the end of this year," predicts Kwan.

Some of the effects of this trend are already being seen. For example, unemployment rates have not increased this year as expected and remain at the current level of 5.3 percent.

Analysts point out the most powerful lesson from the latest economic recovery has been the importance that Asia, especially China, play in driving the Japanese economy.

Statistics show that China’s thriving economy has been lapping up Japanese machinery eager to supply its growing infrastructure and industry.

"A few years ago, China was considered a threat to the Japanese economy. No more. As exports grow, businesses are realising the interdependence of the two economies," explains Kwan.

Japan’s exports to China rose 33.8 percent to 49.6 billion U.S. dollars from 2002. Imports expanded 9.8 percent to 79.3 billion dollars.

Japan also exported a whopping 200 billion U.S. dollars worth of goods to Asian countries in 2003, up for the 23rd month in a row and marking an increase of 46.5 percent from 2002.

On top of the list was a 20 percent increase in exports of machinery and steel to China – and the figures are projected to rise to 70 percent via processing in plants in Thailand, Taiwan and other countries.

A breakdown of Japan’s high GDP figures compiled by the Japan External Trade Organisation, the quasi-governmental organisation, underscores how East Asia and South-east Asia have become the highest contributors in the Japanese economy.

Last year, China was responsible for 0.9 percent of the value of Japan’s GDP while trade with the Association of South-east Asian Nations (ASEAN), at 0.1 percent, comprised the next highest figure.

In contrast, the United States, traditionally the most important market for Japan, now accounts for minus 1.1 percent of Japan’s GDP. Japanese exports to the United States have fallen 5.4 percent to dropping for the 13 months in a row, and imports by Japan fell for the third straight month.

Among the items causing this slump is a slowdown in the entry of U.S. beef, following Tokyo’s decision to ban imports after discovery of the first U.S. case of ‘mad cow’ disease in December.

Analysts describe the stronger Japanese economy as being leaner and meaner since the focus remains on corporate restructuring.

This means that the good old days of lifetime employment and high salaries are gone, says Koichi Ishiyama, a professor of international economics at Toin Yokohama University.

"Some of the stronger signs of economic recovery stem from harsh corporate restructuring. This will continue as Japanese companies strive to become more competitive," he explains.

Indeed, this is why some analysts remain cautious and point out that despite the good signs recently, recovery is still fragile.

Continued sluggishness in consumer spending, which stands for 60 percent of Japan’s GDP – is a factor that is being closely watched as a sign of economic activity and future prospects.

JETRO economist Masahiro Yoshida, while applauding strong exports, says that deep-rooted problems remain.

Surveys on consumer spending, an indicator of spending over the next six months, show no major pick-up, even though a boom in digital products has helped to push an increase by 0.8 percent last year.

Household income also remains weak given the continuing corporate restructuring that has dampened consumer confidence.

Japan’s small and medium sized companies also have not benefited from the current export boom.

The Bank of Japan also views the high yen – the rate is now 106 to a U.S. dollar – as a threat to the gains made from the rising exports market. The yen has strengthened by more than 10 percent from last year.

"All in all, the Japanese recovery is still like walking a tightrope," says Yoshida.