Japan's ebb marks third consecutive quarter

By Yuri Kageyama
Associated Press

TOKYO — Japan's hobbled economy sank deeper into recession, shrinking 1.2 percent during the three months ending in December, the third consecutive quarter of contraction.

The fall, largely caused by plunging private-sector investment, was the first time the Japanese economy has contracted for three consecutive quarters since 1993, the government said yesterday.

Before that, it had never seen even two back-to-back quarters of contraction since the government began keeping such records in 1980.

The drop could drag out the tourism slowdown in Hawai'i, already hit by a plunge in Japanese visitors since the Sept. 11 terrorist attacks, said a report issued yesterday by the University of Hawai'i Economic Research Organization.

"Japan's prolonged recession and weakening currency pose a double challenge for Hawaii in the near term," the report said. "Low consumer confidence and stagnant income undercuts willingness to travel, and a low yen value reduces purchasing power for those visitors who do arrive."

Despite the continuing recession, UH economists Carl Bonham and Byron Gangnes said they detected some "glimmers of hope" in Japan that could be good news for Hawai'i.

Business inventories — the amount of goods on hand for sale to consumers — are at their lowest levels since 1990, meaning factories could increase production at the "slightest upturn" in demand, Bonham and Gangnes said. A recovering U.S. economy could produce this higher demand.

"We expect the U.S. economic growth to accelerate toward 3 percent by year end," the report said. "That means more Americans will be buying Japanese cars, electronics and machinery."

The contraction in Japan's gross domestic product — or the value of goods and services produced in a nation — for the latest quarter translates to an annual 4.5 percent contraction, according to Cabinet official Katsuki Oda.

This nation has been fighting a slowdown for more than 10 years.

Last quarter, which ended in September, Japan slid into its third recession in a decade — sinking 0.5 percent or an annual rate of 2.1 percent. Recession is generally defined as two consecutive quarters of contraction.

For the latest quarter, a 12 percent drop in private sector investment dragged down overall growth. The plunge in investment outweighed a 1.9 percent increase in private consumption and a 2 percent rise in household consumption.

The government also said fallout from the Sept. 11 terrorist attacks also hurt the economy.

Domestic demand — seen as a key factor in firing the economy — dropped 1 percent, while external demand — the other important engine for growth — shrank 0.1 percent.

The government report comes in the wake of some good news about the Japanese economy — the stock market has been recovering, the unemployment rate fell in January for the first time in nearly a year and inventory adjustments at companies are moving ahead.

But yesterday's data also underline how the trickling signs of Japan's recovery are unlikely to ring as true as those emerging recently for the U.S. economy, which grew at an annual rate of 1.4 percent for the quarter ended in December.

That's because Japan's problems are more basic, calling out for deeper changes.