Friday, February 24, 2006

Is This for Real??

Japan has been in and out of some serious recessions in the past 16 years, due to "structural reasons".

Hopefully they are turly out of the maze this time around.

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Japan's economy

Picking itself up
Feb 23rd 2006 | TOKYO
From The Economist print edition

The recovery is spreading, by and large

IF THE latest figures are to be believed, then last year, Japan (yes, Japan) grew faster, at 2.8%, than any G7 economy except America. And as of the final quarter of the year, it was growing faster than America as well, clocking up a 4.2% growth rate, year-on-year. Japan's GDP figures are notoriously prone to revision, so some of the shine may yet come off last year's performance. What is not in doubt, though, is that Japan's recovery is solid and increasingly broad-based.


In the recovery's early stages, rapid export growth played a crucial part in boosting industrial production and so company profits. After a soft patch early last year, export growth has accelerated again, with demand from China particularly strong. But what is striking now is the recovery in domestic demand. Companies with growing order books are spending on capital goods: fixed-capital investment grew at an annualised 7.2% in the last quarter of the year, while the outlook for machinery orders looks buoyant. Companies need to hire more workers. So the availability of jobs continues to grow. For the first time in over a decade, for instance, Japan has as many jobs on offer as there are applicants. Demand for workers is pushing up wages, and that is now clearly being felt in the shops. In the last quarter of 2005, personal consumption jumped sharply, growing at an annualised 3.2%. Department stores in and around Tokyo report brisk winter sales, and the first retail growth in nine years looks set to continue.

Confidence is returning to the housing market, too. New housing starts are holding up in the face of heavy winter snows, as well as a confidence-sapping scandal involving faked earthquake-resistance data for condominiums. And after a period when the housing recovery was confined chiefly to the Tokyo area, it has now spread to other parts, notably around Osaka and Nagoya. Thanks partly to the demand for mortgages, bank lending is starting to pick up again for the first time in years. With Japan pulling out of deflation, the Bank of Japan is likely to begin winding down its policy of super-loose money as soon as March or, more likely, April.

What are the dark spots in this picture? Taking a mildly contrarian stance, Richard Jerram, Japan economist at Macquarie Research, finds a couple. One is fairly soft import growth for such a purportedly robust recovery. This in part reflects the extent to which the recovery is taking place not chiefly in the manufacturing sector, but rather in services, where import demand is relatively low.

A second, more worrying, blot, is that for all that the labour market has tightened over the past year, employment growth, at an annualised 0.5%, is still too sluggish. This, says Mr Jerram, could point to a skills mismatch in the economy, where people are insufficiently suited for the kind of jobs being offered; if he is right, then the situation is not likely to improve anytime soon.

The employment picture also has a strongly regional element to it. In Tokyo, one-and-a-half jobs are being offered for every applicant: but in Hokkaido and Kyushu, Japan's northernmost and southernmost big islands, there are still too few on offer. To that extent, the fruits of the recovery are sure to be shared unevenly.

Copyright © 2006 The Economist Newspaper and The Economist Group. All rights reserved.

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