Japanese Economy on Course for Recovery

16 Apr 04

Japan achieved real growth of 6.4 per cent at an annualised rate in the fourth quarter last year. Though there were some concerns that the revival was limited to larger enterprises and the manufacturing sector, according to the Bank of Japan's Short-Term Economic Survey of Enterprises in Japan (the quarterly Tankan survey) published on April 1, the recovery has extended in scope to embrace small and medium-sized companies and the non-manufacturing sector as well.

The results of the Tankan survey of business confidence show that the number of large manufacturers expressing a ����avourable�ߡ�outlook has increased and reached its highest level since June 1997. In addition, the ratio of large non-manufacturers who consider the future outlook to be positive has increased for two consecutive terms. Furthermore, the business confidence of small and of medium-sized companies has improved significantly.

The recovery of the Japanese economy has been powered by two main factors: rising exports due to economic revival overseas and booming demand for digital equipment such as DVD players, LCD televisions and digital cameras. A dramatic example can be found in the combined domestic and overseas demand for LCD televisions, which rose from 1.34 million units in fiscal 2002 to 3 million in fiscal 2003 and is expected to reach around 7.5 million in the current fiscal year. (Of that last figure, domestic demand will account for approximately 3 million units.) These sectors, in which Japan enjoys technological pre-eminence, should benefit from continuous buoyant demand for the foreseeable future.

Structural issues which affected the Japanese economy after the burst of the bubble have also been alleviated. For example, the disposal of non-performing loans in the banking sector has progressed steadily. T he ratio of such loans at the major banks has decreased from 8.4% in March 2002 to 6.5% in September 2003, which is on track to meet the Government' s target of 4% in March 2005 . The problem of deflation has also been alleviated. Though the inflation rate has been negative since 1999, this rate has improved since last year and recently almost reached zero. Although it would be premature to expect deflation to be eradicated completely, the future outlook for the Japanese economy is positive.