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Home > Media Reviews > News Review Last Updated: 14:54 03/09/2007
News Review #373: November 24, 2006

Japan Cuts Its Evaluation of Economy for First Time Since 2004

Reviewed by Hitoshi URABE

Japan Cuts Its Evaluation of Economy for First Time Since 2004
(Lily Nonomiya) Bloomberg


The Cabinet Office report released on Wednesday showed Japan's economy entered its longest post-war boom with a 58th month of expansion. It beat the previous record established in late 1960s when Japan was at its final stage of recovery from the post-war miseries and to become a major economic player in the world.

For the last year or so, the people in Japan were told that the economy was strong, and that it had kept expanding for the length of time rarely experienced in the modern era. But all the while, the people were somehow not really convinced by the government's announcements. This skepticism has prevented the people from spending for themselves, which in turn suppressed the thrust of economy expansion. Accordingly, in the same report to announce the record-breaking length of continued growth, the Cabinet announcement had to tone down its assessment from the previous ones to merely say, "The economy is recovering, despite some weakness in consumption."

There have been a number of reasons suggested for the sluggish private consumption, i.e. the people's unwillingness to spend. Often mentioned until recently was that there were lingering memories from the 1990s, dubbed as the "lost decade," an aftermath of the collapse of the bubble that shattered the economy. They said people still feared the tragedy would happen again, while getting use to live with smaller volume of consumption.

Recently, bad weather - perhaps preferable in some respect as it implies warm winters and cool summers but bad for sales of seasonal commodities - has been suggested as an evildoer. But the apparent trend now is to point to meager wage gains as the real culprit, saying increase in corporate profit has not resulted in personal income. Those purport this view explain the situation was caused by changes in social structure induced by corporate strategy adopted during the post-bubble era. In order to suppress labor cost, corporations have come to hire less full-time employees and rely more on low-cost part-timers, and the workers themselves have leaned to live within such labor-market framework. Furthermore, such unstable working environment has made it more difficult for the workers to plan long term, preventing them to purchase items such as houses, cars, and other expensive goods. Also, the gloomy outlook on the maintenance of a sound social security system has amplified the anxieties.

Recent reports show export slowing down and machinery orders dropping, while the U.S. economy is becoming less predictable. It has always been pointed out - in both good and bad times - that a solid base of domestic consumption is the key to sustain a healthy economy. This time, the immediate measures necessary seem fairly clear and simple - share the corporate profit with workers so as to promote personal consumption. As so it happens often, however, being clear and simple does not necessarily mean it is easy to execute.

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