Official Optimism Belies Japan's Lagging Recovery
CONTRARY to repeated official statements that the prospects for an imminent recovery of the Japanese economy are ``brightening,'' experts and businesspeople here are increasingly acknowledging that the much-anticipated turnaround is not going to happen anytime soon.
Japan's economy has been in recession for a little more than three years, and officials and economists have been insisting for months that the end is near. Recovery isn't important only for the Japanese. Other countries could use a boost from a more economically vigorous Japan.
Japan's economy is the world's second largest. Producers around the world have been urging the Japanese to open and revive their markets in order to boost demand and employment. The recession here also has curbed Japanese investors' willingness and ability to spend their money abroad.
President Clinton, accordingly, has pursued a tough, numbers-oriented trade policy to put more United States and foreign goods in front of Japanese consumers. But it is growing more and more apparent that the US administration is prying open a stagnant economy.
At the annual convention of Japan's bankers, held in Tokyo yesterday, top economic officials gathered to reiterate the promise of imminent recovery. ``It seems fair to say,'' ventured Bank of Japan Governor Yasushi Mieno, ``that the economy has finally begun to recover.''
The chief of Japan's Economic Planning Agency (EPA), the government's top forecasting body, was more cautious, noting that the economy is ``still broadly sluggish.'' But this official is perhaps constrained by the need to conform to the government's line.
Listen to the former head of the same agency, Yoshio Terasawa, who left office just a month ago: Asked this week if the economy was in recovery, Mr. Terasawa replied: ``No.''
Terasawa was EPA chief during the eight-week administration of former Prime Minister Tsutomu Hata, and said after he resigned that bureaucrats had kept him from stating this view while he was in office.
Since mid-June, when the value of the Japanese yen dramatically increased in relation to the US dollar, the number and stature of skeptics has grown.
Yen's strength a problem
Terasawa cites the strong yen as the main reason for his pessimism. When the value of the Japanese currency is high, exporters here make less money selling goods abroad, and corporate profits decline.
Japan's big exporting companies have been complaining for weeks that international governments are not doing enough to boost the dollar and thereby lower the value of the yen. As profits disappear, these executives say, they can't make big capital investments at home to help drive a recovery. Business spending accounts for 18 percent of Japan's gross domestic product.
Yesterday, the head of Japan's Federation of Economic Organizations expressed doubt that the economy would make a ``genuine'' turnaround. ``Even if there is an economic recovery,'' said Shoichiro Toyoda, who is also the chairman of a big exporter, the Toyota Motor Corporation, ``its tempo will be very mild.''
Japanese corporations also are in the middle of a major structural shift: the attempt to move from an export-driven economy to one more keyed to satisfying domestic demand. Markets here are simultaneously becoming more competitive and price-sensitive, as cheaper foreign goods find their way into Japanese stores.
Consequently, some companies have moved production offshore in recent years in order to cut costs, a trend that has brought about the much-rued ``hollowing'' of the economy. And many analysts predict that more hollowing will bring rising unemployment and dampened consumer confidence.
Private consumption has been one of the few tangible bright spots behind the official optimism. Consumer spending rose 2 percent in the first quarter of 1994, and lately the hot weather has created much demand for air- conditioners and cold drinks.
Consumer spending makes up the biggest chunk of Japan's GDP - 58 percent. But economist Johsen Takahashi, senior fellow at the Mitsubishi Research Institute, says the rising trend in private consumption will flatten.
He likens the recovery to an airplane on the runway. The engines are firing and the craft is moving forward - but he says it will not take off. Despite the bright spots, Mr. Takahashi says the recovery will decelerate in the last three months of this year.
He argues that the optimists have unreasonable expectations of capital investment and consumer spending. Three factors that have been the economy's ``auxiliary engines'' - government spending, housing starts, and exports - will also stall, he adds.
Takahashi observes that the government has largely spent what it has budgeted this year to stimulate the economy, the once robust market for housing is now ``oversupplied,'' and the high yen will drive exports down.