JAPAN
While there has not been a serious economic crisis in the Japanese economy recently, there has not been any move toward sustainable growth either. Deflation has continued to punish the economy and in July 2002, companies filed for bankruptcy at a rate of 58 per day. This not only caused spikes in the unemployment rate, which was near a post-war record of 5.67%, but it also resulted in consumers and investors fearing a possible Japanese meltdown.During all four quarters prior to the April-June 2002 quarters, the Japanese economy contracted, which is the first time this has happened since such data began to be collected in 1980. In February 2002, the Nikkei 225 dropped below the Down Jones Industrial for the first time since 1957. Also, on September 4, 2002, the Tokyo exchange dropped to its lowest levels in approximately 19 years as the world markets also plunged. Also, prices have fallen for four consecutive years, which is unprecedented for industrial countries in the last half century. These and other economic indicators are reflecting the economic stagnation in Japan throughout 2002. In fact, banks have actually shrunk the amount of credit being generated in the form of loans due to the estimated 150 trillion yens in bad outstanding loans according to the Financial Services Agency. Also, the deflation has limited the monetary flexibility of the Bank of Japan, which is evident by the fact that they sent interest rates as low as 0.001%.
For those who have borrowed, the burden of the debt becomes heavier with each passing day. Deflation is also dissuasion for consumers to spend because their money is growing more valuable when stuffed under their mattresses because real rates are higher than the nominal rates.
Upon taking a first glace at the Japanese economy in 2003, it appeared as if there was going to be an ongoing cycle of grotesque hardships that plagued the world's second largest economy last year. During the first quarter, the unemployment rate was 5.4%, the Nikkei Exchange suffered declines, war on Iraq dampened confidence and the SARS outbreaks furthered pessimism toward the prospect of a growing Japanese economy. Nonetheless, global economic growth, especially in the United States, helped to boost corporate profits and increase consumer confidence. Global economic growth this year is projected to be 3.2% and this upward trend in growth is expected to continue next year, reaching a forecasted 4.1% in 2004. Japan is currently on a continued recovery path despite still sluggish consumer spending. Evidence of this economic outlook is seen in recent data that shows the Japanese economy expanding for the sixth straight quarter at an annualized rate of 2.3%. Also, the rise in July output reflects a recover in exports and an uptrend in capital spending. The number of employed, including self-employed, rose for the third straight month, by 70,000 to 63.81 million employed in Japan. In fact, the unemployment rate was 5.3% in July, which was down for the second straight month. The only real negative economic indicator was Japan's core nationwide Consumer Price Index (CPI), which fell 0.2% in July from a year earlier, its 46th straight month of decline. The boost in job growth will hopefully result to increased consumption and thus larger output for Japan in 2004. The major issue still lurking over their economy resides in the continued deflation, which cannot be properly dealt with unless much-needed structural reform of the banking system occurs. Fortunately, the Bank of Japan has recently taken measures, though desperate as such, to take steps in restructuring the banking system in declaring the purchase of three trillion yen of shares (or $24.5 billion in U.S. dollars) held by at least ten major financial institutions for a minimum holding period of ten years.
Be Sure to Continue to Page 4 of "Recent Developments in the Global Economy: Survey of the United States, Japan and European Union".