Business Week
October 23, 2000
SECTION: BUSINESS OUTLOOK; JAPAN; Number 3704; Pg. 38
HEADLINE: STEADIER, BUT STILL WOBBLING
BYLINE: BY JAMES C. COOPER & KATHLEEN MADIGAN
A more optimistic corporate sector and a rising index of leading
indicators offer some evidence that Japan's recovery is firming up.
But pessimism among small companies and weak household spending point
to large pockets of weakness. Until all sectors participate, Japan's
recovery will continue to look fragile, although the economy should
grow 2% this year.
The August leading index jumped to 71.4% from 55.6% in July. It was
the index' third consecutive month above 50%, a signal that the
economy is growing (chart). In other good news, the Tankan Survey for
the third quarter showed that confidence among large manufacturers
rose for the second quarter in a row. That optimism, as well as a
better outlook for profits, is feeding a 13.8% planned increase in
capital spending for the year ending March, 2001. The mood among
smaller businesses, however, continued to show more pessimism than
optimism, although the gap is a bit narrower than in the second
quarter.
Consumers are beginning to feel more upbeat about the economy, but
they aren't boosting their purchases yet. Real household spending
dropped 2.3% in August, the fourth consecutive monthly decline.
Compared with a year ago, spending is down 4.1%, continuing a
three-year downtrend.
Part of the better household mood is the rise in jobs, thanks to
government work programs. Japan's jobless rate in August fell to 4.6%
from July's 4.7%. The rate had hit a record high of 4.9% in March.
Pay gains, however, have been volatile. Wages grew from April to
June, only to drop again in both July and August. To increase demand,
the government is going ahead with a planned stimulus package later
this year.
Certainly, policymakers must welcome the optimism among Japan's large
corporations. However, keep in mind that large companies also turned
upbeat in 1997 on the hopes for a sustainable Japanese recovery. But
when consumers continued to cut back on their spending, the economy
declined again in 1998. And business confidence tanked along with it.
