Japan's economy turning to "sustained recovery"

15:21, April 13, 2010      

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The Bank of Japan (BOJ) policy makers have said that they opposed bolstering a lending program last month as it could not be explained given improving economic conditions, according to the minutes of the monetary policy meeting held in mid March.

With the economic recovery signs evidencing and the deflation easing, most BOJ board members maintained that a substantial increase in money supply would play a supporting role in the economic activity and price situation. It implies that BOJ would ease its monetary policy further.

Since the government of Prime Minister Yukio Hatoyama swept into power last summer, stock prices have risen and (Japanese) yen has depreciated, Finance Minister Naoto Kan said in his address at the Correspondents Club of Japan in Tokyo on Monday. … "Deflation has a major negative impact on Japan's economy, and it also makes it much more difficult to restore public finances."

Meanwhile, "no one can deny that Japan's fiscal economic management has been improving since the Hatoyama government took office"in September last year, and the Bank of Japan Governor Masaaki Shirakawa said on Monday, April 12 that "there were some signs of a sustained recovery in Japan's economy ahead."

Japan's bonds post a biggest weekly decline in a month as signs that the global economy was recovering damped demand for the safety of government debt. ROJ Governor Shirakawa said that there is a clear trend of the"sustained recovery"and concerns for the second bottom has been dissolved to some extent. He also confirmed that the rise judgment has been given to the Japanese economic boom.

An improved judgment on Japan's economy is made based primarily on Indexes of Business Conditions, and the main reason is precisely that the economic growth of such emerging market nations as China have contributed to Japan's growing exports and sustain production growth. In addition, a business survey released by the BOJ recently also indicates a significant improvement in economic situation with large Japanese companies.

Moreover, statistics indicate that Japan's manufacturing and non-manufacturing is turning around in general, and it has benefited from a recovery of exports, a drop in Japanese yen exchange rate and a substantial rise in the manufacture of electrical and electronical products, and this would continue to benefit service industries and other realms.

Both the ISM manufacturing and non-manufacturing indices have shown better than forecasted figures, but the ISM prices paid show weaker than forecasted. It is however beneficial from the depreciation of Japanese yen and substantial profits or returns of Japanese appliances and electronics makers, and this trend would go on benefiting service industries.

Nevertheless, Europe's economic recovery has been driven by fiscal and monetary policy stimulus, and the prospects are still variable. So, in spite of signs of pick-up in investment, the capital expenditure of companies remains at a relatively low level.

Since the business investment focus is shifted to outside Asia, Japan has also become a major factor in economic instability. Currently, various reforms aimed at cutting labor costs have gained a momentum, and Japanese companies are seeking less expensive alternatives and begin hiring women for contract, part-time jobs and inexpensive labor, which enable Japanese firms to cut their costs. So, the national "employment situation"cannot be resolved within a short period of time.

Furthermore, despite reduced concerns about the second bottom out of Japanese economy, the end of deflation remains invisible, business investment in equipment is sluggish and the employment situation remains stark.

Confronted with continued deflationary pressures, Japan's cabinet and central bank have been working jointly to strengthen policy coordination. Prime Minister Hatoyama Yuko conferred last Friday, or April 9, with central bank governor Masaaki Shirakawa at the prime minister's official residence for a wide-ranging exchange of views on the economic situation and policy performance.

In an interview with media, Japanese Foreign Minister Naoto Kan, who was also present at the talks, said such talks would be held possibly every three months in the future and this should be set as a rule. During the recent talks, the Japanese government and the central bank reached consensuses for continued efforts to overcome deflation.

In order to get rid of deflation, the Bank of Japan said it would continue to implement a lax or loose monetary policy. Japan's bonds handed investors a loss of 0.1 percent in local-currency terms, according to a BOJ decision reached at a monetary policy meeting in March this year.

By People's Daily Online and contributed by PD overseas resident reporter Yu Qing in Japan


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