End is In Sight for Japan’s Protracted Economic Recession

The Japanese economy, which has been plagued by long-term recession, is having high expectations about the end of the economic slowdown with improving performances in its stock prices and economic indicators.

Encouraged by more active facility investments of companies and higher industrial output, the Japanese government set out to revise the nation’s economic growth forecast upward. But some are cautiously saying that this better economic performance would not last long.

Nikkei stock market index was up by 3.83 yen to close at 10,650.77 yen Friday, continuing the recent stock market rally. The index was up by more than 36% four months after it reached a low of 7.607.88 yen on April 28th, the lowest since the burst of bubble.

The real GDP of Japan has continued a positive growth for 6 consecutive quarters since the first quarter of last year. The real GDP growth of Japan during the second quarter of this year was 0.6%.

Unlike other Asian nations that suffered from economic slowdown due to the Iraq war and SARS, Japan is witnessing active productions and investments this year with its exports growing at around 5 %. The treasury ministry said that Japanese companies’ facility investments during the second quarter of this year increased by 6.4 % year-on-year and revenues, which have continued to show a minus growth last year, increased by 2.4%.

Nissan Motor is planning to increase its facility investment by 10 % year-on-year to spend 420 billion yen this year. Sharp doubled its year-on- year investment to LCD in the second quarter of this year.

The Nihon Geizai newspaper’s survey of 1000 companies showed that corporations’ profitability recovered to the highest level since the bursting of the bubble. The consumer spending is slowly picking up thanks to rising stock prices.

In a survey of Japanese households in June, household spending has increased in nine months. The Japanese government expects that without any unexpected negative impacts on its economy, the real economic growth rate will increase to 2 % this year and the growth trend will continue.

But some experts cautioned that better performances of companies are largely attributable to cost reduction efforts such as layoffs and it is hard to say that consumer spending has started to fully recover.

parkwj@donga.com