Japan more realistic about growth

The Koizumi administration has been more honest about Japan's prospects

In this story: Too confident about spring Official estimate "ridiculously high" Good auto earnings RELATED STORIES

By Staff and wire reports

TOKYO, Japan -- Finance minister Masajuro Shiokawa admits he may have been too upbeat in his first assessment of the economy.

His comments reflect the greater openness from Prime Minister Junichiro Koizumi's government.

But, despite some positive earnings coming out of Japan, economists say the government is still hopelessly overconfident about growth prospects.

Too confident about spring

Shiokawa told a Lower House committee meeting on Wednesday that he is not as optimistic as when he took office in late April.

"At the time, my analysis was not very deep, although I did have a feeling that it was getting better as spring came," Shiokawa said.

The government last week lowered its assessment of the economy for the fourth month in a row. That's the worst string of downgrades since February 1998.

The Cabinet Office noted an "increasingly weakening" economy. Given poor tech prospects and that the United States is not rebounding as quickly as hoped, Shiokawa said he has revised his outlook.

"I am certainly worried about it," he said.

Official estimate "ridiculously high"

The government has a 1.7 percent growth target for the current fiscal year, which runs through March 2002. But economists say that is unreachable. They expect growth to come in a full percentage point less than that.

The figure is "ridiculously high," according to Hiromichi Shirakawa, chief Japan economist for UBS Warburg. "The government's projection is just wishful thinking, more or less."

The Koizumi administration has been much more honest than previous governments in its outlook for the Japanese economy. Economic and Fiscal Policy minister Heizo Takenaka has frequently said the 1.7 percent target is too optimistic.

But there is a problem involved in missing it. Japan's budget is based on the projection, which means tax receipts are likely to fall short. That would force the government to issue more bonds.

Koizumi has made belt tightening a priority for his government. A key platform of his structural reforms is reigning in Japanese government bonds, or JGBs, at 30 trillion yen next fiscal year.

That starts almost a year away. But economists feel Koizumi may have to increase government spending before he gets a chance to come through on his promise.

Good auto earnings

Japan has been enjoying some sunny corporate news this week.

No. 3 Japanese carmaker Nissan announced record profits Thursday. It posted net income of $2.7 billion (331 billion yen) for the year through March 31, easily clearing analysts' expectations.

It posted a huge loss of 684 billion yen the year before.

On Wednesday, No. 1 carmaker Toyota reported its largest profit yet, at $3.8 billion (471 billion yen).

That could do wonders for the psyche of Japanese business, which puts a lot of pride in the performance of its big-name companies.

"The fundamental reaction of the market should be good," Shirakawa said, "with competitive Japanese firms, particularly manufacturers doing relatively good."

But there is a bigger divergence between winners and losers among Japanese companies, he said. The stock market will reward winners handsomely. But prospects for the bulk of companies are not good, as 2001 lags 2000.

"The market is always paying attention to losers, too," Shirawaka warned.

Reuters contributed to this report.

Economy worsening, says Japan

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