Japan Joins Recent Wave Of Economic Expansion

By Blaine Harden
Washington Post Foreign Service
Monday, August 17, 2009

TOKYO, Aug. 17 -- Japan announced Monday that its economy has returned to growth, bouncing back from what had been the steepest slide of any industrialized nation during the global economic crisis.

Japan's gross domestic product, which last winter contracted at more than double the rate of the United States', grew at an annual rate of 3.7 percent from April to June, the government said.

Helped by a rebound in exports to China and a large government stimulus program, the world's second-largest economy was able to record its first quarter of growth in more than a year, as the GDP, a broad measure of economic output, expanded 0.9 percent over the previous three-month period.

The return to growth in Japan, where the economy had shrunk at an annualized rate of 11.7 percent in the first quarter of the year, is one of the strongest signals so far that a corner has been turned in the global economy.

It comes amid a surprisingly sprightly economic bounce across Asia, as China, South Korea, Indonesia, Singapore and Hong Kong have all reported growth in the second quarter.

Japan, though, is a laggard in the region, as gains in much of Asia have galloped ahead at nearly 10 percent in the second quarter. Yoshimasa Hayashi, Japan's economic and fiscal policy minister, told reporters Monday that conditions here are likely to remain severe.

Economists have attributed the rapid recovery in Asia to large economic stimulus packages (especially in China), a spurt in manufacturing, an easing of credit, and the health of Asian banks that were largely unscathed by the U.S. and European debt crisis.

In Europe, too, there are signals of recovery, with Germany and France becoming the first two major industrialized nations to officially shake off the global recession. The growth in both countries, though, was an anemic 0.3 percent in the second quarter, and economists said it is far too early to declare an end of the recession in Europe, where Britain, Italy and Spain are still stuck in their worst decline in decades.

The U.S. economy shrank by 1 percent in the second quarter, but the Federal Reserve signaled last week that it expects the downturn to ease and that it will begin pulling back this fall from its intervention in the economy.

Officials at Japanese companies largely think their country's worst post-war recession is nearly over, according to a survey released over the weekend. Representatives of two-thirds of the 108 major companies contacted by Kyodo News said they expect the economy to recover in early 2010.

Drastic production cuts and reductions in inventory have set the stage here for recovery, economists said, as wages fell sharply and unemployment jumped to 5.4 percent, which is exceptionally high by Japanese standards.

A huge government stimulus effort -- amounting to about 5 percent of Japan's GDP -- has also perked up domestic spending and slowed layoffs.

Bank of Japan Governor Masaaki Shirakawa warned last week that the increase in demand may lessen as the effect of government stimulus spending declines. The bank kept interest rates at slightly above zero.

News that Japan's economy is growing appears unlikely to rescue Prime Minister Taro Aso and the ruling Liberal Democratic Party from what would be a historic defeat in a general election Aug. 30.

"It is too late," said Minoru Morita, a political analyst in Tokyo. "Regardless of what the numbers say, a majority of people are struggling day to day. The market will respond, but the general public will not."

Polls show that Aso's party, which has had 54 years of nearly unbroken rule, is likely to be clobbered by the opposition Democratic Party of Japan, which is promising to pay more attention to consumers and small businesses, rather than to the blue-chip corporations that traditionally have had the ear of the LDP.

The Democratic Party is also promising to guarantee pensions for the country's large and growing elderly population. In the past two years, the ruling party has been unable to reassure the elderly, in the wake of a scandal in which millions of government pension records went missing, that their pensions are safe.

The opposition candidate for prime minister, Yukio Hatoyama, a wealthy politician who has a doctorate in engineering from Stanford University, is 10 to 20 percentage points ahead of Aso in recent opinion polls.

"The wind is still blowing for the opposition party," Morita said. "The relationship of the ruling party with the grass roots has been destroyed. People feel they can no longer support LDP, and they want change."

Special correspondent Akiko Yamamoto contributed to this report.

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