Japan economy surprisingly strong in April-June

Reviewed by Hitoshi URABE

Article:
"Japan economy surprisingly strong in April-June"
(by Jonathan Standing, Reuters) Forbes
http://www.forbes.com/personalfinance/retirement/
newswire/2003/08/11/rtr1054855.html

Comments:

The GDP growth rate reported for the 2Q earlier in the week surprised everyone apparently including Mr Takenaka, the minister in charge for economic growth. He said in the press conference following the announcement that though he did foresee a positive figure, the actual number was a bit higher than his expectations.

As reported in the article, Japan's 2Q real GDP showed 0.6% growth from the previous quarter, or 2.3% growth on an annualized basis. There was indeed some optimism looming before the announcement as hinted by increase in sales and higher corporate earnings, especially in electronic sector on items such as DVD's, digital cameras, and liquid crystal displays (for flat-panel TV's). As it turned out, many of the components to calculate the GDP over performed the previous assumptions of many. Even the cautious Mr Fukui, the governor of Bank of Japan, commented that strong figures in machinery orders was an encouraging indication that corporate investment is picking up.

Nevertheless, a number of special factors that could have temporarily boosted the figure have been suggested by the critics, and an overall optimism toward the future has been carefully played down.

On top of the list of special factors was SARS. Because of the epidemic, overseas tours from Japan dropped by 51.7% in June compared to the same month last year. As the drop would decrease the 'import' volume in that column, it would have had an effect of raising external demand in terms of GDP calculation. Domestic travel, by the way, increased by 5.0%, which some claim to as a shift from overseas traveling, but it may only be a recovery from last year in June when people stayed home to watch the World Cup soccer on TV.

Tax hike on cigarettes, which was to take effect from July made people rush to purchase t hem in June to pile up stock. Japan Tobacco, the monopoly in selling cigarettes, has announced that the sale of cigarettes in June was more than they expected even considering the tax hike.

Some point to the tightening of emission standards beginning in October in Tokyo. Most of buses and trucks running on diesel fuel need to be furnished with new gadgets to suppress emissions, and as the operators are rushing to get them, it is causing a temporary hike in domestic demand, enough to show up in the overall figure.

Indeed, critics estimate that these special factors have accounted for half of the unexpected surge in the GDP figure. No wonder even the ever aggressive Mr Takenaka had to play it down so as not to raise people's expectations so high.

And the future does not look so promising either. The unusually cold and damp weather this year, in drastic contrast to some parts of Europe, is already curbing areas of economy dependent on weather such as drop in sales of beer and swimsuits, less people in mountain and sea resorts, and poor crop.

Structural adjustments would continue at corporations, as pointed out the central bank governor Mr Fukui, raising concern for further increase in unemployment, and the recent proposal by the Ministry of Finance to cut public pension payments as a part of pension reform planned next year, would not provide positive mentality for people to spend.

Thus even if there was an implied message of real recovery in the recent GDP report, it seems people are not quite ready for it. On top of all the crunched numbers, it seems people are still very skeptical, which itself would have an effect of keeping recovery at a distance.