Bookmark & Share
WITH Japan heading for national elections on Aug 30, the debate about the future direction of the Japanese economy is likely to heat up.
Speaking at a press conference after Parliament was dissolved last Tuesday, embattled Prime Minister Taro Aso declared optimistically: 'The economy is showing signs of recovery.'
Mr Aso wants the election campaign to focus on recent indications that economic conditions are improving, apparently believing that this subject offers him a better chance of re-election than allowing the left-leaning opposition Democratic Party of Japan (DPJ) to focus on his recent gaffe-prone political history.
Many observers, however, believe that Mr Aso is about to lead his party to a historic defeat. A recent public opinion survey by the Nikkei newspaper revealed that only 30 per cent of voters supported the ruling Liberal Democratic Party (LDP), compared to the DPJ's 40 per cent approval rating. The LDP has governed Japan for more than half a century, except for a brief period in the early 1990s.
But is the economy really about to turn around? And if it is, are there any signs that the improvement is being felt by ordinary voters?
Early last month, Bank of Japan governor Masaaki Shirakawa declared that the worst of the recession appeared to be over. 'Japan's economic conditions, after deteriorating significantly, have begun to stop worsening,' he told a meeting of BoJ branch managers. Output contracted at a record annualised pace of 14.2 per cent in the first quarter. But Japan's central bank predicts the economy will begin growing again in the second half of this fiscal year which ends in March next year.
Mr Shirakawa's statement echoed announcements last month by government leaders to the effect that stimulus measures were helping to produce a recovery in production, exports and consumption. According to the Trade Ministry, Japan's industrial output rose for a third month in a row in May, up 5.9 per cent from the previous month.
The point was further underlined in the middle of this month, when the Ministry of Finance released trade statistics for June showing that exports fell by the smallest margin in six months. As a result of a bigger fall in imports, Japan posted a trade surplus of 508 billion yen (S$7.8 billion) - the highest since March last year. Export declines eased in all of Japan's major markets, particularly China where huge stimulus spending by Beijing helped China's growth accelerate in the second quarter
But if the economy really is getting better, ordinary Japanese have yet to feel it. DPJ candidates will almost certainly spend the next few weeks reminding voters of the rising unemployment rate - 5.2 per cent in May - and the fact that capital investment and housing starts are still falling.
The three stimulus packages introduced by the LDP government have been deemed wasteful by the DPJ, which has proposed an alternative package focusing more on household payments to boost spending.
It is true that the consumer sentiment index has risen slightly, but it remains at a very low level. Indeed, retail sales fell 2.8 per cent in May from a year earlier, the ninth monthly decline. Sales were unchanged from April.
Core consumer prices also fell a record 1.1 per cent in May from a year earlier, prompting fears of a repeat of the deflationary spiral the country experienced after the asset price bubble burst in the early 1990s.
The reality is that while the Japanese economy may have bottomed out, it is unlikely to pick up any time soon. In fact, with data from the Cabinet office showing companies delaying outlays on new plants and equipment, the recession could continue for some months. Core machinery orders, a leading indicator of capital expenditure, fell 3 per cent from April to May. This was much worse than the consensus expectation among economists, which was for a 2 per cent rise.
Continued job losses and wage cuts will probably continue to curtail consumer spending, which makes up more than half of the economy. Like the rest of Asia, any sustained pick-up in economic growth awaits improvements in the economies of Europe, the US and China.
Meanwhile, DPJ leader Yukio Hatoyama is promising reforms, including strengthening social welfare and wrestling control of policymaking from what the DPJ says is an overly powerful bureaucracy.
Mr Aso's best hope of holding on to power would probably be for the opposition to return to its well-established habit of shooting itself in the foot. Mr Hatoyama has already been embarrassed after it emerged that several dead people were listed as party donors. But it would take something much more extraordinary than this to upset the opposition bandwagon.
For Mr Aso, Japan's current economic prospects offer little comfort.
If the economy really is getting better, ordinary Japanese have yet to feel it. Opposition candidates will almost certainly spend the next few weeks reminding voters of the rising unemployment rate and the fact that capital investment and housing starts are still falling.
Search Property News
