Japan deep in recession worries US

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Japan deep in recession worries US

By Michael Millett in Tokyo

Japan's economy is deteriorating at an alarming pace, with new data yesterday showing its jobless rate soaring to a record high and its consumer prices registering their biggest monthly fall.

The bleak figures confirm that the world's second biggest economy is firmly in recession, with the next set of GDP figures needed only to register the development formally.

But it is the speed and depth of the decline, at a time when global growth is slowing markedly, that is causing concern among policymakers on both sides of the Pacific.

Far from trying to prop up the economy, the Japanese Government is threatening to make the contraction even worse by plunging ahead with its reform shock therapy.

The figures were issued only hours before the Japanese Prime Minister, Mr Junichiro Koizumi, was to fly to the US for his first face-to-face meeting with the US President, Mr George W. Bush.

Mr Koizumi will use the meeting to stress his determination to proceed with what even he admits are "painful" structural reforms to end Japan's prolonged economic malaise. The new Tokyo approach, at odds with the manic pump-priming measures of previous Liberal Democratic Party government, has Washington's firm support.

The Bush Administration believes it is only by "biting the bullet", sending debt-ridden companies to the wall, cleaning up the banking sector and exposing inefficient sectors to competition, that Japan will be able to reclaim its status as an engine of world growth. But this joint resolve is being severely tested by the flood of bad readings coming out of Tokyo.

On Thursday, government figures showed industrial production falling by a bigger than expected 1.2 per cent in May over the same month a year earlier.

Industrial output - one of the most accurate barometers of Japan's economic health - has now fallen by 8.5 per cent in the past six months. This is a contractory pace even sharper than that in the 1998 recession, the worst registered by a G-7 economy since World War II.

Yesterday's figures show the direct impact this contraction is having on overall economic activity. After easing slightly in recent months, the jobless rate surged back to a record 4.9 per cent with male unemployment at a new peak of 5.1 per cent.

Key figures in Mr Koizumi's reform administration, such as Economics Minister Mr Heizo Takenaka, warn the figure will get worse in the next six to 12 months as policy measures such as a clampdown on bank debt, bite. The Cabinet Office said this week that mopping up non-performing loans could cost up to 190,000 jobs.

Meanwhile, the nation appears incapable of ending its debilitating deflationary slump.

Japan's core CPI index, excluding fresh food prices, fell for the 20th straight month, with May's 0.7 per cent drop over the same month the previous year representing the largest drop since the data series began in 1971. The figures have prompted renewed government calls for the independent Bank of Japan to pursue more radical measures to reverse the price trend.

But the bank is insisting it cannot and will not do anything more until Mr Koizumi provides more detail of his reforms.

http://www.smh.com.au/news/0106/30/biztech/biztech3.html

-- Martin Thompson (mthom1927@aol.com), June 29, 2001

Answers

Friday, 29 June, 2001, 11:16 GMT 12:16 UK Record jobless total in Japan

Unemployment in Japan has once again climbed to its highest level since the Second World War.

It's almost certain we're in recession right now Chris Walker, economist, Credit Suisse First Boston in Tokyo The country's jobless total hit 3.48 million, or 4.9%, in May, matching the record high reached at the start of the year.

Some analysts are predicting the unemployment rate will soar above 5.5% by the end of 2001, as reforms designed to bail out the country's debt-crippled banking sector, such as persuading lenders to ditch bad loans, take effect.

The world's second largest economy has been unable to break out of a decade-long economic slowdown.

And the latest rise in unemployment, which has been accompanied by a record drop in consumer prices, is fuelling fears that the country has lurched into a full-blown recession.

Recession fears

The grim economic figures come a day after the Bank of Japan (BOJ) decided not to ease monetary policy.

It made its decision despite a string of economic indicators pointing to a second straight quarter of contraction in the country's economy.

In the first three months of the year the Japanese economy shrank 0.2%.

Chris Walker, economist at Credit Suisse First Boston in Tokyo, said: "It's almost certain we're in recession right now.

"We had a contraction in the first quarter and I'd be very surprised if we don't have one in the second quarter.

"We're looking at data from May and they're all pointing at weak consumer demand."

Job insecurity

Underscoring weak consumer spending, a separate set of data showed spending by wage earners' households fell, in real terms, by 2.6% in May from a year earlier to 318,677 yen ($2,564), the second successive month of decline.

Even if there were a panic, we wouldn't let Japan cause a (worldwide) financial meltdown Japanese Prime Minister Junichiro Koizumi Economists have said insecurity about jobs and future earnings have been one of the main reasons behind Japan's moribund consumer spending, and is arguably the most politically critical problem for Prime Minister Junichiro Koizumi to tackle.

But Mr Koizumi told the Asian Wall Street Journal that he would not back away from his programme for painful change, or allow his planned structural reforms that include tackling banks' huge bad loans to spark a worldwide depression.

"Until we get out on the path of reform, growth will sag," he was quoted as saying.

'Safety net'

Japan now has a safety net to shore up troubled banks, and Mr Koizumi said he would not hesitate to use it if a crisis loomed.

"Even if there were a panic, we wouldn't let Japan cause a (worldwide) financial meltdown," the newspaper quoted him as saying.

"There is no worry about that. We have extraordinary measures for extraordinary times like that."

Mr Koizumi is to meet US president George Bush at the weekend to discuss his plans for reform.

http://news.bbc.co.uk/hi/english/business/newsid_1413000/1413666.stm

-- Martin Thompson (mthom1927@aol.com), June 29, 2001.


One note:

Japan counts someone as employed if they work any amount of time -- on anyday -- in a given month.

Their standards for what makes someone unemployed are NOT the same as those in the US.

JB

-- Jackson Brown (Jackson_Brown@deja.com), June 29, 2001.


Note the timing -- new Japanese PM making first Washington visit, and suddenly the Japanese government drops the happy-face act and starts reporting real economic data. The new guy doesn't have a lot of support among the Japanese bureaucracy, and they cook their numbers just as much as we do. There's more going on here than meets the eye. I'd say someone -- new PM -- is being set up for a fall so the Old Guard can return to power and protect all those companies that are going to fail otherwise.

-- Cash (Cash@andcarry.com), July 02, 2001.

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