Japan'S Economic Recovery Slow But Sensitive

Fortunately, the private sector is increasing in strength and the economy continues to recover. However, at the moment, the tempo is gradual and the jobs situation is still severe despite some improvement, Prime Minister Ryutaro Hashimoto told a convention of life insurers.

It is necessary to closely watch over the future direction of the economy, he added.

The government's Economic Planning Agency (EPA) also said in a regular report on the economy issued on Friday, the recovery was making only slow progress and that it still needed the help of easy credit to reach a self-sustaining stage. In managing our monetary policy for the time being, we think it is appropriate to keep putting emphasis on making the basis for an economic recovery more solid, Bank of Japan (BoJ) governor Yasuo Matsushita told the life insurers convention.

 

The report also prescribed remedies, such as deregulation and expansion of domestic demand, to nurse the economy back to full health, but stopped short of mentioning any additional fiscal stimulus measures.

We are at a difficult, sensitive stage, EPA minister Shusei Tanaka said.

Hashimoto has said he will make a final decision after September 20 on whether a supplementary budget for the fiscal year to next March was needed to stimulate the economy, after looking at April-June gross domestic product figures due out in mid-September.

However, analysts said the government may shelve the option in the face of tight state finances, as Japan's average economic growth was expected to show a slight increase in the first half of1996.

The latest monthly economic report was virtually unchanged in its core evaluation from the previous month.

, using the same wording as before.

The economy is continuing to recover, as seen in the increasingly bullish tone in private-sector demand, but the tempo of the recovery is gradual for now, the report by the economic policy research arm said.

We have not been able to confirm that the current recovery has become a self-sustaining one, an EPA official said.

Although overall business sentiment continues to brighten, some companies have become cautious as can be seen in sluggish growth of industrial output, a high level of inventories and a still worrisome unemployment rate, the EPA official said.

But growth in exports has risen as the weakness of the yen against the dollar this past year has helped Japanese products, especially cars, regain their competitiveness.

The jobless rate, though still at a high level, fell to 3.4 per cent in July after posting a record 3.5 per cent for the previous three months.

A sluggish semiconductor market may also force companies to revise down their capital spending plans later this year, the EPA official said.