JAPAN'S ECONOMY SKIDS AGAIN!

Economy descends into new recession

Takenaka still upbeat on 'long pause'By MAYUMI NEGISHIStaff writerThe nation's economy contracted for the third straight quarter in the October-December period, pitching Japan into a technical recession.
Government figures released Wednesday show the economy shrank an annualized 0.5 percent in the quarter.
Households refused to spend more amid rising pension costs and slumping wages, causing gross domestic product to post a 0.1 percent quarter-on-quarter decline in real terms on a seasonally adjusted basis. The government the same day revised downward its preliminary estimate of July-September GDP to a contraction of 0.3 percent from a gain of 0.1 percent.
A recession is widely defined as two consecutive quarters of GDP contraction.
"Companies may be doing better, but wages are down, social security costs are up, we're eyeing a future of tax increases, and households are forced to be on the defensive," said Kunji Okue, fiscal policy analyst at Dresdner Kleinwort Wasserstein Securities Ltd. "The economy physically can't grow" without external demand, he said.
The latest result is the worst since the economy contracted for four consecutive quarters through the January-March period of 2002, when the economy was hit by the collapse of the information-technology bubble.
Policymakers and corporate executives dismissed Wednesday's figures, denying the economy was in recession or that any change was needed in government policy.
"It's a rather long pause in the economy," said Heizo Takenaka, economic and fiscal policy minister.
The government cannot say the economy is in recession on the basis of GDP alone, he said. "There is no change in our basic view that the economy overall continues to recover."
He said the GDP data show signs that price conditions are improving.
The GDP deflator, which measures changes in prices, fell 0.3 percent year on year, compared with a 1.3 percent decline in the previous quarter.
"I am not at all pessimistic," said Kenji Miyahara, chairman of trading company Sumitomo Corp. "It's an adjustment phase."
The government projects a real 2.1 percent growth for the full fiscal 2004 year.
Real GDP for calendar 2004 grew 2.6 percent year on year, the highest level of growth since calendar 1996.
But economists say the latest GDP figures suggest the economy is not as strong as the government and business leaders make out.
"The data disprove the government's assessment that the economy is on a genuine recovery path," said Yasunari Ueno, chief market economist at Mizuho Securities Co. "With expendable income being squeezed, I can't forecast sunny skies through 2005."
Warm winter temperatures hurt clothing sales and recreational sports businesses, while rising vegetable and oil prices further hurt personal spending, which fell 0.3 percent from the previous quarter. Nominal yearly wages, which economists say have a strong impact on the consumer psyche, fell for the fourth consecutive year in calendar 2004.
Okue and other analysts also said the current slowdown in exports will likely recover somewhat in the latter half of this year.
"But it won't be a dramatic boost that will carry us all the way through 2006," Okue said.
The total value of external demand -- exports minus imports -- trimmed 0.2 percentage point from the GDP, as imports outpaced exports on high demand for raw materials, clothes, higher-priced farm produce and aircraft.
The Japan Times: Feb. 17, 2005