Japan's economy showing signs of life
By Hans Greimel
Associated Press
TOKYO — Stocks are up. Industrial production is poised to increase. More businesses are optimistic about the future. The glimmers of good news have people wondering: Has Japan's long-suffering economy finally reached bottom?
The country, lurching through its third recession in a decade of bad news, has seen a recent raft of economic figures that suggest the steady downturn may be ending.
"It's the cyclical recovery of the industrial economy. It's exciting," said Jesper Koll, chief economist for Merrill Lynch in Tokyo. He predicts Japan's economy will be growing at up to 1.5 percent by the end of year.
Prime Minister Junichiro Koizumi made a campaign pledge to rekindle the economy, the world's second largest. Japan's troubles also have become an international concern, with the United States urging the government to implement reforms before it becomes a drag on the global economy.
While the government says the economy won't pick up until late in the year, Japan's outlook brightened a bit this week with a nationwide survey suggesting more businesses are upbeat about the future.
The Finance Ministry reported that the outlook at large Japanese companies brightened a bit for the January-March quarter. While overall business sentiment was still negative, the results indicated more businesses were less pessimistic about the future than a quarter earlier.
Underpinning these hopes are a 22 percent increase in the Nikkei stock index since early February and Koizumi's long-awaited economic recovery plan, unveiled last week.
Another positive sign was a plunge in business inventories to their lowest levels since 1990. Empty warehouses mean factories must increase production to match any rise in foreign demand. That's more and more likely as the United States stages a quicker-than-expected economic recovery, spurring demand for Japanese products.
Some economists, however, caution that a trickle of positive data doesn't prove a trend.
"It's still way too early to say that a turnaround is happening," said Shigenori Okazaki of UBS Warburg in Tokyo. "We still have to wait for more evidence."
Indeed, the stock market's spike is due in large part to new government restrictions on the short-selling of shares, an investment strategy that bets on stocks declining. Stocks also were buoyed by indications that the government might step in to bolster stocks in a crisis.
At the same time, Japanese industrial output for January shrank 1 percent — much faster than expected.
Japan's economy is hobbled, in part, by hundreds of billions of dollars in bad loans stretching back to the boom years, when banks blindly doled out money.
To stay in business, leading brands such as Toyota and Toshiba have increasingly built factories abroad, where labor costs are cheaper. Other companies have simply folded — about 1,505 businesses alone closed their doors in December with unpaid loans of about $11.3 billion.
Both trends translate into lost jobs at home and the destruction of Japan's cherished tradition of lifetime employment, once a bragging point of the country's economic prowess.
Japan's unemployment stands at 5.3 percent, slightly below a record high 5.5 percent charted in December. That is just below the U.S. rate of 5.6 percent.
Even optimists admit that consumer spending will be the key to a real comeback. Exports account for only about 15 percent of companies' shipments, so even a U.S. recovery would have a limited impact without Japanese consumers chipping in.
But persuading spenders to splurge could be difficult with most economists saying the economy will keep deteriorating in the short term.
The government is due to release economic growth figures tomorrow for the October-December period, and most economists expect them to show that the economy shrank by around 0.3 percent — the third straight contraction in gross domestic product.
Japan says the economy likely shrank by 0.9 percent for the year ending next month and has forecast that it will show no growth for the fiscal year beginning in April before growing no more than 1.6 percent in the next year.
