— Cabinet Office Official: Long Way Before Japan Overcomes Deflation
TOKYO (MNI) – The Japanese government on Friday left its overall
assessment of the economy unchanged, saying it is “picking up steadily,”
while revising up its view on business sentiment after the Bank of
Japan’s Tankan survey showed an improvement.
Last month the government upgraded its assessment of current
economic conditions for the first time in eight months.
This month it also repeated its resolve to fight deflation and
guide the economy to a sustained recovery by “conducting aggressive and
comprehensive measures” together with the Bank of Japan and urged the
BOJ to act in line with the government through “flexible” monetary
policy.
“Although the economy has been picking up steadily, it is only
weakly self-sustaining and remains in a difficult situation with a high
unemployment rate,” the Cabinet Office said in its monthly economic
report for April.
Keisuke Tsumura, parliamentary secretary of the Cabinet Office for
economic and fiscal policy, told reporters that he and other
policymakers decided against upgrading the assessment this month because
they wanted to confirm budding signs of a recovery in consumer spending
and business investment.
“It is still a long way before we overcome deflation,” said
Tsumura.
In deciding that Japan has moved out of a deflationary phase, the
government must confirm that constant price drops have stopped and are
unlikely to return in all of the three key indicators — the CPI, GDP
deflator and output gap, he said.
Then it also must confirm that public sentiment on prices has
improved in the BOJ’s quarterly Tankan as well as the monthly Economy
Watchers’ Survey and Consumer Confidence Survey released by the Cabinet
Office, he added.
“It’s not as automatic as for how many months (the year-on-year
change in) the CPI must stay in positive territory,” Tsumura said.
In March the Cabinet Office added the word “steadily” to reflect
the continued recovery from the global recession and acknowledged that
there are signs of emerging “self-sustainability,” a gradual step
forward from the previous statement that the economy lacked “autonomous
factors.”
But Japan’s economic growth is still mainly supported by fiscal and
monetary stimulus as well as a recovery in overseas demand while the
latest GDP data confirmed favorable developments in domestic demand, as
seen in the third straight quarterly gain in consumer spending and the
first q/q rise in business investment in equipment in seven quarters.
The gross domestic product expanded a real 0.9% in October-December
2009 from the previous quarter, or an annualized 3.8%, following a 0.1%
drop q/q, or annualized 0.6% fall, in July-September.
In the monthly report, the Cabinet Office upgraded its assessment
of business sentiment in April for the first time in six months, saying
it is “improving,” instead of “continues to show movements of picking up
as a whole.”
Business confidence among large Japanese manufacturers improved in
March for the fourth consecutive quarter, as exports and production
continued to rise on the recovering global economy, according to the
BOJ’s Tankan quarterly business survey.
On the other hand, the Cabinet Office downgraded its view on public
investment, which is now “weakening” after public works projects
declined in the January-March quarter as widely expected. It was the
first downgrade in two months.
“But we are not being pessimistic because we expect public
investment to rebound on a quarter-on-quarter basis in April-June,”
Tsumura said.
The government also revised down its view on corporate bankruptcies
for the first time in 18 months as they are now “largely unchanged,”
instead of “decreasing moderately.”
Bankruptcies are largely due to the glut in the construction
industry but the government is helping builders convert to farming and
forestry business, said Tsumura.
Meanwhile, the Cabinet Office maintained its assessment of consumer
spending in April after upgrading it for the first time in eight months
to “picking up.”
Its Consumption Synthetic Index, which is based on household
spending and industrial shipments, rose a real 4.3% in February from a
year earlier after rising a revised 3.1% in January and a revised 2.1%
in December.
Japan’s average household spending unexpectedly fell by a real 0.5%
from a year earlier to Y261,163 in February, on declines in purchases of
cars, gasoline, medical care and tuition. It posted the first
year-on-year drop in seven months after rising 1.7% in January
The government also left its assessment of employment unchanged in
April after upgrading it in March for the first time in four months,
noting “movements of an incipient recovery can be seen recently” while
repeating that the labor market climate “remains severe.”
The unemployment rate stood at 4.9% in February, unchanged from
January, as a month-on-month drop in seasonally adjusted job creation
was offset by a decline in the number of unemployed. But job losses
continued when compared with year-earlier levels.
The average monthly total cash earnings per regular employee in
Japan fell to Y264,261 in February, down by a revised 0.7% year-on-year
(preliminary -0.6%), posting the 21st straight drop in a row.
While overtime pay rose for the second month in a row, pushing up
overall compensation, the average “base wage” — the key indicator for a
recovery — remained below a year earlier.
But the number of regular employees posted the first year-on-year
rise in 10 months in the revised data, showing a sign of a gradual
recovery in the labor market.
In November 2009 the government mentioned “deflation” in its
monthly report for the first time since June 2006, although it was not
highlighted in the overall assessment but listed at the bottom of bullet
points outlining how different segments of the economy were doing.
This month it maintained the line saying: “Recent price
developments show that the Japanese economy is in a mild deflationary
phase.”
“As for short-term prospects, although some severe aspects remain
in the employment situation, the economy is expected to pick up as
corporate profits improve, reflecting improvement in overseas economies
and the effects of policy measures including emergency economic
measures,” the Cabinet Office said, largely repeating its previous
outlook.
Looking further ahead, the government urged a close watch on
downside risks including “a possible slowdown in overseas economies and
the influence of deflation,” referring to the risk that Japan’s exports
to Asia and other emerging economies may lose steam.
It also repeated its warning that “there is still concern that the
employment situation could deteriorate.”
Through July 2009, the government had revised up its overall
economic assessment for three straight months, the first such successive
upgrades in about six years. Japan’s last economic expansion, its
longest post-war stretch, began in early 2002 and ended in late 2007.
From February to April 2009, it described the worst recession for
Japan in half a century: “The economy is worsening rapidly while in a
severe situation.”
tokyo@marketnews.com
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