Japan Faces Mounting Economic Difficulties

While the U.S. economy suffers from the subprime mortgage crisis, Japan’s economy is also going through the doldrums.

In its monthly report, Japan’s Cabinet Office stated that “the economic recovery is stalled for the time being,” according to Japan’s Asahi Shimbun.

Facility investment and production, key drivers in Japan’s economic recovery, have decreased. Besides, sales plummeted at department stores, discount stores and convenient stores in January, indicating lackluster private consumption.

The Cabinet Office had claimed that Japan’s economy was recovering in January. Just one month later, however, they reversed their stance announcing, “The pace of economic recovery has slowed down.”

After being mired in an economic recession for more than a decade since the early 1990s, Japan’s economy eventually started recovering in 2002 and has enjoyed its longest growth cycle since World War II. Amidst this recovery period, it faced two temporary economic slowdowns, between December 2002 and September 2003, and between December 2004 and August 2005.

The Japanese government believes the recent economic difficulties are temporary and predicts that the economy will be back in recovery mode soon. However, some economists argue, “Japan’s economy peaked in November 2007, and has already begun a correctional phase.”

Japan’s newspaper Nihon Keizai Shimbun recently surveyed 100 CEOs of major Japanese firms. According to the survey, 23.8 percent of respondents responded, “Economic conditions are worsening.” When the newspaper conducted a similar survey in December 2007, only 7.5 percent felt that way.

Japanese Prime Minister Fukuda Yasuo ordered relevant departments to come up with countermeasures, but the government is unlikely to implement effective policies due to recent political turmoil. Asahi Shimbun reported, “If the country’s longest economic recovery period ends, the reeling Fukuda government could be dealt a serious blow.”

iam@donga.com