The Japanese economy, which had been mired in recession, grew an astonishing 1.9 percent in the first three months of this year, largely because of massive public-works spending, the government announced today.
The quarter-on-quarter growth translated into an annualized rate of 7.9 percent, stunning economists and sending stock prices soaring here.
Since the Asian financial crisis began in 1997, U.S. officials have been warning that the recovery of Japan's weak economy, the second largest in the world, is critical to global growth and stability.
But government officials and economists in Tokyo warned that the first-quarter numbers do not signal an economic turnaround because they resulted largely from government spending, not private demand. Many were also skeptical about the numbers, given the rising unemployment as companies restructure.
"It's baffling. Even the most optimistic forecasters, who had been adjusting their numbers upward at the last minute, even they didn't come halfway close to these numbers," said Chris Calderwood, an economist at Jardine Fleming.
"This is very different from the figures we came up with by calculating together monthly figures," said Yasuhiko Ushikubo, an economist with the Industrial Bank of Japan.
The growth figures evidently took the Japanese government by surprise as well. Taiichi Sakaiya, the head of Japan's Economic Planning Agency, told reporters: "My reaction was `Is this true?' It's too early to say that Japan has recovered. The government continues to feel that the economy has stabilized, but we have to cautiously watch how the economy progresses."
Takafusa Shioya, deputy general director of the planning agency, said in a news conference that "it is too early to decide" if the economy has bottomed out. He said part of the reason the growth numbers look strong is that they are coming off very weak figures in the previous quarter.
For instance, private capital outlays rose 2.5 percent, but from an extremely low level, according to Hisashi Yamada, an economist with the Japan Research Institute.
Kazutaka Kirishima, an economist at the Sumitomo Life Research Institute, said the government spent huge amounts of money trying to stimulate the economy during the first quarter. That money is expected to run out in the second half of this year, and the government has not made a decision on whether to provide more to boost the economy further.
Kirishima was pessimistic about the prospects for growth in private consumption, noting that unemployment is rising and wages are not.
The Bank of Japan reported recently that consumer sentiment had improved slightly but remained at a low level. It said sales of personal computers and other household electric appliances remained high and that spending on travel, which had been declining, had recovered during the first quarter of 1999.
The central bank's report said that housing investments had been rising rapidly since February, apparently because of homeowner construction loans made available by the government Housing Loan Corp. It also said that personal income tax cuts, the recovery in stock market prices and the easing of the banking crisis had helped to restore some confidence among consumers. But it warned that with full-scale corporate restructuring underway, unemployment could worsen.
Indeed, most Japanese interviewed today seemed surprised to hear that the economy had grown so robustly during the first quarter. "You're kidding," said Masamitsu Chosa, 50, a bookstore owner. "I don't see any change. I don't think people think things are better."
"No, it's not picking up," said Tomoko Kinoshita, 31, who works in marketing at a small advertising company. She said in her firm, when women quit they are replaced by temporary workers as the company tries to cut costs.
But Takashi Sarutani, a 59-year-old printing company executive, said that his business has been improving. Many of his customers are companies in information technology, an industry that has been growing in Japan. "I think the Japanese economy, led by information technology, will begin to grow, just like the U.S. economy is growing," he said.
CAPTION: A POSITIVE SIGN (This chart was not available)
CAPTION: A Tokyo street sign tells passers-by that the Nikkei stock index rose 480 points yesterday.