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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

JAPAN'S BLIP FAILS TO STICK

Higher quarterly GDP does not signal a turn

By Jonathan Sprague


The numbers looked as miraculous as manna from heaven. Japan's gross domestic product increased 1.9% in the January-March quarter from the previous three months - a stunning 7.9% in annualized terms. The yen and the stock market surged as investors welcomed the first positive growth figure in six quarters, and Finance Minister Miyazawa Kiichi declared: "My impression is that we are beginning to see light at the end of the tunnel." So why is hardly anybody cheering? Maybe because the pickup is more the result of a $330 billion jolt from the government's fiscal defibrillator rather than of the economy's heart beating on its own. "What the numbers tell us is that fiscal packages do have an impact," says Kuribayashi Hiroshi, an economist with Barclays Capital in Tokyo. "What we will learn in the next quarter is that their impact is very temporary."

At least something works. Unveiling the GDP figures, the Economic Planning Agency (EPA) said public demand jumped 6.0% in the quarter, thanks largely to stimulus packages enacted by the government last year. Private demand rose a more modest 1.3%, but even that was more than expected and cause for some encouragement. Nonetheless, officials are playing things very cautiously. "It is still too early to say that the Japanese economy has recovered," said EPA chief Sakaiya Taichi. "In particular, the employment situation continues to be very severe." And therein lies Japan's nemesis. The macroeconomic picture has improved and investor confidence has found a new lease on life after Tokyo halted the deterioration of the banking system, public funds juiced up the statistics and numerous private companies began restructuring their operations. But ordinary Japanese remain petrified about the future. And no amount of fancy statistics is about to change that any time soon.

"It's the worst," a sushi chef in the old Tokyo shopping neighborhood of Azabu Juban recently told his sole Sunday lunch customer. "Most weekends, it's like, zzzzz," he said, cocking his head to the side and closing his eyes in imitation of sleep. With unemployment at a record high 4.8% and expected to reach 5% in the coming months, consumer spending remains . . . sporadic. There are signs that people are buying more. The EPA points to rising mini-car sales as a sign that consumers are willing to open their wallets a little wider. But a mid-40s salaryman who bought a new mini-car despite his fears about job security described the purchase as "pressure release" for the frustrations building up in his family rather than any sign of renewed confidence. He had driven his old car for eight years, around twice as long as his habit. Moreover, his new mini-car cost some $8,300 rather than the $14,000-$17,000 he would have spent on a larger car before the economy tanked. His wife concurs: Until they saw salaries recovering and brighter prospects ahead, they would remain cautious - except for occassional and affordable "pressure releases."

In an attempt to underpin public confidence, the government this month announced a $4.2 billion package to create 700,000 jobs -300,000 temporary jobs in central and local governments, 150,000 publicly-subsidized jobs in growth fields like computers and telecommunications, and 250,000 more jobs from spin-off effects - targeting middle-aged and senior workers who have been laid off as well as new graduates having trouble finding work. It is also offering corporations legal changes and some tax breaks to restructure and overcome the so-called "three excesses" of too much capacity, debt and staff. Economists also expect another stimulus package, not as big as last year's but still in the range of $40-$50 billion, before the year end. "Everybody knows that without another package things will get worse," says Brian Rose, an economist at Warburg Dillon Read in Tokyo. "We believe the government will maintain infrastructure spending in the hope that it will eventually boost consumer confidence, which right now is as weak as it ever was."

And so future numbers coming out of Japan in the medium term are likely to be less spectacular. "We might see one [more] positive quarter - the current April-June quarter - but after that we will almost definitely have two, probably three negative quarters," says Rose. The rest of Asia need not hold its beath either. While Asian financial markets were boosted by the January-March GDP figures and the reactions of the yen and Tokyo stocks, given the uptick's roots in government spending, regional economies were never in line to seen any spillover benefit. "Public sector spending doesn't translate into imports from Asia," says Rose. "When Japan builds more bridges or roads, it doesn't import cement or steel or other construction materials, so there should be negligible impact on Asia." The surprising GDP surge did show that there is life in the old country still - but Japan is not getting out of bed yet.

- With reporting by Assif Shameen and Murakami Mutsuko/Tokyo


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