Posted on: Saturday, December 20, 2003

Japan confident recovery will continue

By Natalie Obiko Pearson
Associated Press

TOKYO — Japan's government expects the economy to expand by 1.8 percent in the next fiscal year starting in April, reflecting an ongoing recovery, strong demand at home and abroad and eased concerns over deflation.

The projections, compiled by the Cabinet Office and released yesterday, show Tokyo remains confident of continued economic growth, despite concerns over the rising yen and over whether the U.S. economy will remain strong.

Japan's economy grew 1.6 percent in fiscal 2002, and Tokyo is targeting 2.1 percent growth for fiscal 2003 which ends March 31.

According to the forecast for the year beginning in April, consumer spending will rise 1.1 percent and private capital outlays will grow 7.2 percent.

"We see a real recovery based on capital investment and foreign demand from now on," said senior economist Yukari Sato of JP Morgan Securities in Tokyo. "But the fundamentals underpinning private consumption are still weak."

She said pension reforms and other factors could weigh on consumer spending.

The government has consistently tried to stimulate domestic demand. But consumer spending, which makes up more than half of the Japanese economy, has remained flat.

Earlier this month, the government revised downward the gross domestic product growth for the three months through September, from 0.6 percent to 0.3 percent. While overall growth was weaker than originally estimated, it marked the seventh straight quarter that the economy has expanded.

Even so, the world's second-largest economy has been stuck in a slowdown for more than a decade, sinking into recession between bouts of weak recovery.

It continues to be dogged by deflation — the downward spiraling of prices that deadens economic activity by reducing profits and paychecks. Such price falls undermine a country's GDP by diminishing the total value of goods and services.

Economy Minister Heizo Takenaka called for the government and central bank to work harder to beat deflation.

"To overcome deflation, real growth of 2 percent must be solemnly maintained," he told reporters. "The Bank of Japan and the government must do more to bring about such conditions."

The most recent upturn in the economy has been largely dependent on strong exports linked to rebounds in overseas economies.