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Japanese economy heads out of recession

Japanese economy heads out of recession
By David Pilling in Tokyo
Published: March 1 2005 10:46 / Last updated: March 1 2005 19:48

Japanese consumers loosened their purse strings and companies took on more workers in January, shoring up evidence that the country may be shrugging off nine months of shallow recession.

Data released on Tuesday showed household spending rose a real 2.6 per cent in January from a year earlier and a seasonally adjusted 8.2 per cent from the previous month, when warm weather deferred winter spending. Disposable income rose 0.9 per cent year-on-year.

The economy created 470,000 jobs in January, building on 170,000 new jobs in December, although economists warned such rates of hiring were not likely to be sustained. Unemployment was steady at 4.5 per cent.

Tuesday’s strong figures added to a steady stream of positive data in January, including industrial production, retail sales and housing starts

The economy watchers' index, which tracks the mood of service sector workers, also improved for the first time in six months.

Yukari Sato, economist at CSFB, said: “The adjustment period has happened faster than many people expected.”

She said it was likely that the economy had stopped shrinking in the fourth quarter of last year in spite of preliminary data showing a 0.1 per cent decline in gross domestic product. Japan had been in a “soft patch, not a recession,” she said

Junichiro Koizumi, prime minister, seized on the data, telling a parliamentary committee: “Assuming the US, China and the global economy keep recovering, employment and income conditions should improve and the recovery in the corporate sector should filter through to households more clearly.”

The prime minister was addressing concerns that corporate Japan, which is making near-record profits, had not been passing on the benefits to workers in the form of permanent jobs and higher wages.

Worker compensation has fallen for seven years, although there is evidence that manufacturing wages rose slightly in the quarter to December.

Economists say falling wages have undermined the strength of the recovery, the most promising since 1990, by making the economy overly dependent on exports, which account for just over 10 per cent of GDP. Yesterday's job figures may reinforce the view that a tight labour market is finally feeding through into higher wages and consumer spending. Richard Jerram, economist at Macquarie Securities, said: “There are more . . . signs of a revival in export volumes feeding through into stronger production, as well as a gradual improvement in wage incomes which should help consumer spending.”

Peter Tasker, consultant strategist at Dresdner Kleinwort Wasserstein, warned against over reliance on the idea that the Japanese consumer could lead a recovery. Japan still favoured production over consumption and exports over domestic sales, he said, making recovery heavily dependent on US and Asian demand. Mr Tasker and others argue that, even if wages begin to recover, the prospect of higher taxes and social security payments which are being phased in to shore up Japan's shaky finances will keep spending increases in check.


LINK: http://news.ft.com/cms/s/b8117b04-8a3d-11d9-98b6-00000e2511c8.html