Japan confirms economic woes


Japan's short-term prospects are "of considerable concern", the IMF says

By Geoff Hiscock
CNN Asia Business Editor

TOKYO, Japan (CNN) -- Japan has confirmed its gross domestic product shrank 1.2 percent in the December 2001 quarter from the previous quarter, highlighting the problems faced by the world's No. 2 economy.

The Cabinet Office said Thursday it was leaving Japan's GDP figure for the October-December period unchanged, but was revising the annualized rate from a 4.5 percent contraction to one of 4.8 percent.

The confirmation from the Cabinet Office comes as observers are warning that the Japanese economy faces a difficult and delicate task in extricating itself from recession.

International Monetary Fund senior adviser David Robinson told CNN Thursday that while the fund agreed with Prime Minister Junichiro Koizumi's fiscal reform measures in the medium term, there was a concern that "too much too soon" could choke off recovery in Japan.

Releasing its global outlook on April 18, the IMF said Japan's short-term prospects "are a source of considerable concern", with output likely to fall 1 percent this year.

Structural impediments


Koizumi's popularity has fallen sharply

It said Japan's inability to achieve sustained growth over the past decade "reflects the failure to deal decisively with deep structural impediments".

Robinson said the Koizumi administration had taken some steps towards structural reform but clearly there was "a good deal more to be done" on the banking and corporate reform fronts.

Japan's Financial Services Agency said earlier this month that nonperforming loans at the major banks increased by 4.7 trillion yen ($36.15 billion) to reach 7.9 trillion yen (about $61 billion) at the end of March.

Tokyo-based analyst for West LB Panmure, Fiachra Mac Cana, told CNN Thursday that in the past few months Koizumi had redoubled his efforts to get reform legislation through.

Mac Cana said it was important that this momentum be maintained, despite the falling popularity of Koizumi.

Approval rating down

Since coming to power a year ago, Koizumi's approval rating has dropped from more than 80 percent to about 40 percent.

Deflation, high unemployment, declining consumer demand, a string of corporate collapses and a banking system burdened with massive amounts of bad loans are just some of the problems that confront his administration.

The December 2001 quarterly figures marked the third straight quarter of economic contraction in Japan, with September showing a decline of 0.5 percent and June a 1.2 percent fall.

Still, Japanese business is looking for better times ahead, with the Bank of Japan's latest quarterly survey showing increased optimism about the June 2002 quarter.

Likewise, in its April report, the Cabinet Office said that while the economy continues to be in a difficult situation, it is showing "movements towards bottoming out".

Tokyo-based chief economist for J.P. Morgan, Masaaki Kanno, said earlier this month that export-led gains in industrial production would see Japan's economy starting to recover by mid-year

However, any pickup is expected to be slow and weak.

In its half-yearly East Asia outlook earlier this month, the World Bank predicted Japan's economy would shrink by 1.2 percent this year, ahead of a 1.7 percent pickup in 2003.