Rising economic numbers in land of rising
sun By Richard Hanson
TOKYO -
The summer budget season came early, much like the
sweltering record August-like heat that struck Tokyo
this week. But, for a change, the fiscal news was a
refreshing blast that confirmed Japan's most robust
economic growth since the early 1990s.
Prime
Minister Junichiro Koizumi's Cabinet Office on Wednesday
happily revised the nation's official economic growth
forecast for the current fiscal year (ending March 31,
2005) to a bubbling real 3.5% from a cautious original
1.8% last January. The numbers are adjusted for price
inflation and other factors.
While government
officials emphasize that the revision - announced
earlier than expected - reflects signs of just more and
more of the impressive recovery that has lifted spirits
since the latter half of fiscal 2003, they are also
signaling that the government expects to maintain a
tight reign on its huge, and growing, mountain of debt.
Just as the Cabinet Office was announcing the
good growth forecasts, a stern Donald Johnston,
secretary general of the Organization for Economic
Cooperation and Development (OECD), the watchdog of the
industrial world, was warning a Tokyo gathering about
Japan's deteriorating government finances.
Japan's public debt on total equals 160% of
gross domestic product (GDP), a number that is growing
apace at the moment. That is the highest figure among
all OECD members and cannot be allowed to snowball,
Johnston said.
By the growth numbers alone, key
components of Japan's growth machine are running just
fine. Personal spending and employment conditions have
been strong since April 1, the start of the current
fiscal year, due to strong corporate earnings.
In nominal terms, the Cabinet Office report said
that growth to next March 31 will reach 1.8% versus the
earlier forecast of 0.5%. These upwardly revised numbers
were reported to the government's Council on Economic
and Fiscal Policy, which is chaired by the prime
minister himself.
The real 3.5% growth forecast,
if realized, will be the highest GDP growth since the
3.2% gain recorded in fiscal 1996.
The council
is also under the influence of Economic Minister Heizo
Takenaka, an academic who bolstered his position by
becoming the runaway top winner in the election for the
Upper House of parliament this month. Takenaka is a
strong believer in fiscal health for Japan's
debt-burdened banking sector. Observers are watching
carefully for signals of how the government will deal
with the public-debt issue in the upcoming
budget-formation negotiations. These are under the
control of the influential officials of the Ministry of
Finance (MoF), who have been battling to instill fiscal
discipline within the government.
Koizumi, as a
matter of habit, is a strong advocate of fiscal reform
and eliminating waste in government. His most urgent
priority is to complete the privatization of the postal
system, in which Takenaka is expected to play a key
role.
According to the government, the
assumptions for growth are straightforward. Japanese
business has benefited from strong demand for Japanese
products from its fastest-growing markets - China and
the rest of Asia, along with the United States. There is
a measure of risk over whether these markets will remain
strong, especially the US. China may also slow in the
latter part of the year, but that is less of a risk
considering that growth there is chugging along at an
annual pace of 7-9%.
What has piqued interest is
that in the past the government has usually waited until
September before revising official GDP projections for
each fiscal year. Wednesday's upward revisions marked
the first time that the government has moved forward the
timing of such a revision.
Meanwhile, the
Cabinet Office revised upward its growth projection for
fiscal 2004 corporate capital outlays to a real 9.9%
from the initially projected 7.2%. In addition, it
revised upward the growth projection for private
consumption to a real 2.6% from the initially estimated
1.1%. The Cabinet Office said the unemployment rate for
fiscal 2004 will likely dip to 4.5% from the initially
forecast 5.1%. Crude-oil price increases are likely to
limit the margin of consumer price falls for fiscal 2004
to 0.1% from the initially forecast 0.2%, it predicted.
These calculations are not as neat at the
bureaucrats in the OECD might like them, but then again
Japan has always been somewhat apart from the norms,
having joined in the 1960s as the only token non-Western
member. The OECD still tweaks on Japan a bit.
"The productivity of Japanese manufacturers is
outstanding," the organization's Johnston said. "But the
productivity of the service-industry sector is very poor
compared to most OECD countries."
Only the final
figures will tell.
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