Recovery not likely soon in Japan, reports indicate

By Hans Greimel
Associated Press

TOKYO — Japan's economy will likely stagnate for the next two or three years at a potential growth rate of about 1 percent, with recovery expected only after proposed reforms kick in, a government report said yesterday.

The report by the Japanese Cabinet Office said the economy will grow by about 2 percent or more after the reforms are completed.

A separate report from the Organization for Economic Cooperation and Development painted a similarly bleak picture for the Japanese economy.

The reports offer the latest warning on the state of Japan's economy.

Moody's Investors Service, a major U.S. credit ratings agency, lowered Japan's credit rating, acknowledging that even "radical" restructuring doesn't offer much hope for a turnaround. Standard & Poor's and Fitch, two other major ratings agencies, made similar moves last week.

On Friday, Japan plans to announce its gross domestic product data for the July-September quarter. The GDP is the value of goods and services produced in a nation.

It is widely expected Japan will officially be pronounced in recession, usually defined as two consecutive quarters of contraction — the nation's fourth recession in a decade.

Last month, the Japanese government said it is expecting the economy to shrink 0.9 percent for the fiscal year ending in March, reversing its initial target of 1.7 percent growth. Japan's economy shrank for the entire fiscal year only once in the past decade — in 1998, when it contracted 0.8 percent.

In its latest report, the OECD, a Paris-based group of rich nations, said Japan's economy won't start growing until 2003, shrinking by three-quarters of a percent this year and by 1 percent in 2002.

"Although a slowdown was expected this year, the deceleration has been surprisingly rapid," the OECD said.

After suffering a 10-year economic slowdown, Japan continues to be heavily burdened by bad debts at the nation's banks at a time when the government can no longer rely on public spending to boost demand, according to the report.

The government must ease regulations, change tax laws and encourage technological advances to help revive the economy, it said.

In its latest assessment of Japan's creditworthiness, Moody's called Japan's economic reforms "elusive."