Japan's economy shows upturn

By Yuri Kageyama
Associated Press

TOKYO — Japan's economy grew 1.4 percent in the first quarter, springing back from three straight quarters of contraction, the government said yesterday.

The Cabinet Office said gross domestic product, which measures the total output of goods and services produced in the nation, grew at an annual rate of 5.7 percent in the three months through March.

A big push in growth came from exports, which climbed 6.4 percent, on the back of recovery in the United States and the rest of Asia. Household consumption rose 1.6 percent, while public investment increased 4.1 percent.

Japan has been stagnating in a slowdown for more than 10 years, hobbled by an antiquated economic system that has failed to encourage ventures, streamline inefficient regulations and wrest the nation from a dependence on exports.

Japan's economy — the world's second biggest — remains heavily reliant on the United States for sorely needed growth momentum. The U.S. economy snapped back from last year's recession and grew at an annual rate of 5.6 percent in the first quarter, the strongest performance in nearly two years.

Improvements in Japan's economy would be welcome news for Hawai'i. Japanese consumers, wary about their economic outlook, have been cutting back on travel, including to the Islands. But analysts caution that Japan's recovery remains shaky and that any growth is likely to stay moderate in months to come.

"It's hard to say if the recession is really over," said Takeshi Minami, senior market economist at UFJ Capital Markets Securities Co. in Tokyo. "We need about half a year to assess the situation."

For the October-December period, Japan's economy shrank at an annual rate of 4.8 percent after two consecutive quarters of contraction.

The last time Japan's economy contracted for three quarters straight was in 1993, but the drops were far smaller. Before that, Japan had never seen even two back-to-back quarters of contraction.

The government has said signs are emerging in recent months that the downturn is bottoming out, mainly lifted by exports.

While inventory adjustments are progressing and corporate profits are improving, capital investment has not risen significantly because of continuing pressure to cut costs.

A number of technical factors are helping push the reading higher for the quarter, giving a brighter picture than the dismal realities, analysts say.

The sharp drop in the previous quarter means the numbers for the first quarter will be positive in reaction. Consumer spending gets boosted in a backlash to people's holding back on purchases earlier. Such a rise is likely to be unstable and temporary.

The administration of Prime Minister Junichiro Koizumi has made economic reform its central policy, promising to privatize chunks of the money-losing public sector and rein in pork-barrel public works spending.

Pessimism is rapidly growing about any quick fixes. Analysts and government officials say it may take months to get the Japanese economy solidly back on a growth track.