Good stats buoy hopes, but recovery still
fragile By Suvendrini
Kakuchi
TOKYO - 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 (GDP) grew 7 percent on an annualized
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
Southeast Asia. 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 in
Tokyo that he believes Japan's economic recovery is
sustainable.
IMF official sees sustainable
recovery "I do think it is sustainable," Koehler
said. "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 September 30
levels. 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, eager to supply its growing
infrastructure and industry, has been lapping up
Japanese machinery and other products.
Once
viewed as a threat, China now fuels the
economy "A few years ago, China was considered a
threat to the Japanese economy. No more. As exports
grow, businesses are realizing the interdependence of
the two economies," explains Kwan, the senior economist
at the Tokyo-based Research Institute for Economy and
Trade.
Japan's exports to China last year rose
33.8 percent to US$49.6 billion, over 2002. Imports
expanded 9.8 percent to US$79.3 billion.
Japan
also exported a US$200 billion in goods to Asian
countries in 2003, up for the 23rd month in a row and
marking an increase of 46.5 percent over 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
Organization, the quasi-governmental organization,
underscores how East Asia and Southeast Asia have become
the highest contributors to 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 Southeast Asian Nations (ASEAN), at 0.1
percent, took second place.
US now represents
less than 1.1 percent of GDP In contrast, the
United States, traditionally the most important market
for Japan, now accounts for less than 1.1 percent of
Japan's GDP. Japanese exports to the US have fallen 5.4
percent, dropping for the 13th month 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 US beef, following Tokyo's decision to
ban imports after discovery of the first US 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.
Sluggish
consumer spending a problem Continued
sluggishness in consumer spending, which represents 60
percent of Japan's GDP - is a factor that is being
closely watched as a sign of economic activity and
future prospects.
Economist Masahiro Yoshida of
the Japan External Trade Organization, 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 US 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.
