Recession possible, says Japanese minister

TOKYO, Japan -- For the first time in almost six years, Japan has said its economy is "weakening."

In a closely-watched monthly report, the Cabinet Office said on Friday that hopes of a recovery for the world's second largest economy are fading.

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It was the first time since September 1995 the government has used the word "weakening" in a report, and the third consecutive month its overall assessment of the economy has become more pessimistic.

"Economic conditions are severe," Economy Minister Taro Aso told a news conference.

Aso admitted a recession is "possible" in the months ahead and called for a supplementary government budget to pay for more public-spending programs this year.

Yen tumbles

The government's gloomy prognosis sent the yen tumbling on the currency market.

The dollar bought 124.24 yen in late Tokyo trading on Friday, up 0.97 yen from the day before.

The report put part of the blame on the slowing U.S. economy -- the most important market for Japanese exporters.

Output at the nation's factories is falling because electronics companies and other manufacturing sectors are exporting less, it said.

Corporate investment has also fallen as Japanese managers spend less money on new facilities and equipment as their confidence in business conditions erodes.

Deflation

One of the most worrying symptoms of Japan's economic malady is deflation, or continuing price declines.

With unemployment and bankruptcies at near-record levels, consumers and companies in this country are spending less.

The resulting drop in prices is translating into lower profits and wages, and economists worry that prolonged deflation could plunge the economy into a downward spiral.

The April report said the economy was suffering from "moderate" deflation, the second month in a row the government has warned about the danger of falling prices.

Onus on Mori successor

Lifting the economy out of its doldrums will be the first order of business for whoever replaces outgoing Prime Minister Yoshiro Mori.

Japan's governing Liberal Democrats are holding a party poll on April 24 to choose a successor for Mori, whose reputation for politically incorrect statements has made him one of the least popular Japanese leaders in decades.

All four candidates for his job -- led by former Prime Minister Ryutaro Hashimoto -- are talking about giving the ailing economy more injections of taxpayer money in the form of public-works spending.

But that prescription has proved ineffective for past administrations and has left Japan the worst debtor among industrialized nations.

Lethargic demand

Its national debt now stands at $5.3 trillion, or 130 percent of gross domestic product.

The nation's central bank also appears to have fired all its policy bullets.

The Bank of Japan moved last month to guide interest rates to near zero in a desperate effort to stimulate lethargic demand. It left that policy unchanged at a meeting Friday.

The Japanese government is forecasting 1.7 percent growth for the fiscal year through March 2002, but some private-sector economists believe that is too optimistic.

The government was targeting 1.2 percent growth in fiscal 2001, which ended last month.

The Associated Press contributed to this report.

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