Japan recovery might be slowing

By Yuri Kageyama
Associated Press

TOKYO — Japan's economy grew 0.7 percent during the July-September period for a third consecutive quarter of growth despite emerging signs that the nation's recovery may be slowing.

Figures released yesterday by the Cabinet Office showed Japan's gross domestic product — the total output of goods and services produced in a nation — grew at an annual rate of 3 percent.

Japan's GDP grew 1 percent in the April-June quarter.

Japan has been struggling for a decade with an economic slowdown that has left massive debt in the financial sector.

Analysts warn the improvements seen in the first fiscal half ending in September could be short-lived because the fragile turnaround is largely driven by exports and domestic demand remains weak.

Any faltering in the pace of a rebound in the United States and other global economies is a major threat to Japan's growth.

Shuji Shirota, an economist at Dresdner Kleinwort Wasserstein in Tokyo, said Japan's economy may dip again into contraction next year because he believes the U.S. economic revival won't be solid until the July-September quarter of next year.

"The scenario of an economic recovery in Japan led by external demand is crumbling," Shirota said, warning that rising unemployment and dwindling paychecks will continue to dampen consumer spending.

The government had expected no growth for the fiscal year ending in March 2003 but revised that projection in September to 0.2 percent growth, citing improvements in factory production and surging exports as the downturn bottomed out earlier this year.

More recently, the government has expressed worries about sliding Tokyo share prices, which are lagging at 19-year lows.

The administration of Prime Minister Junichiro Koizumi has promised to crack down on the mounting bad debts at the nation's banks, which analysts say are hitting even healthy companies with tight lending.

The government is expected to monitor the banks' bookkeeping more closely to make sure the amount of bad loans are assessed correctly.

The estimate for bad loans stands at about 40 trillion yen ($330 billion), but private analysts say the amount could be three times that figure.