After six months of sizzling growth, an unexpectedly sharp slowdown in the Japanese economy caught nearly everyone by surprise. But, economists said, don't let the setback fool you: Japan's recovery is far from over.
Japan's economy grew at an annual rate of 1.7 percent in the second quarter of the year, a surprisingly sharp deceleration from the heady rate of 6.6 percent in the first quarter and 7.4 percent in the last quarter of last year.
The pace was also much slower than the 4.2 percent expansion expected by economists, prompting many of them to question the accuracy of the data and predict a rebound in the quarters ahead.
"We think this is kind of a temporary slowdown and the economy is likely to return to solid, steady growth," said Takehiro Sato, an economist with Morgan Stanley in Tokyo, arguing that soft spots in consumer spending and capital investment would turn around.
Growth slowed, in part, due to disappointingly weak consumption at home. That could be a troubling development, as Japan is counting on a rebound in spending to take up the slack when, as anticipated, a slower global economy takes a toll on Japanese exports later this year. Weakness in consumer spending meant that exports were, once again, the main engine of growth in the second quarter.
Still, economists and policy-makers said they were confident that Japan's recovery remained on track, though at a slower pace, and that consumer spending would again help drive growth.
"With recovery in the corporate sector filtering through to households, the economy is recovering firmly," Takeshi Erikawa, a cabinet office official, told reporters on Friday. He dismissed the idea that the sub-par growth figures would prompt the government to lower its own economic forecasts.
Toshihiko Fukui, head of the central bank, last month went so far as to declare that the end of Japan's "lost decade" of stagnant economic growth was finally in sight because of signs that the export recovery was expanding to include consumers at home.
The problem is that many ordinary Japanese do not entirely share that rosy outlook, which has resulted in some faltering in spending.
While government surveys show that consumers are beginning to take heart from rising corporate profits and an improving job market -- Japan's 4.6 percent unemployment rate is the lowest in more than three and a half years -- many workers are still not seeing the fruits of the recovery, now in its second year.
"The economy may be getting better, but it isn't getting particularly better on an individual level," said Kiyotaka Awatsu, 42, who works at computer company in Tokyo. Like many Japanese his age, Awatsu said his salary has been shrinking, making it difficult to spend more.
Although companies are making more money, the paychecks of salaried workers are still falling. The average monthly income for Japanese households dropped 0.7 percent in June from a year earlier, continuing a long downtrend.
Big exporters, department stores and even the nation's once-teetering banks are all healthier than they have been in years, but many are still trimming payrolls. Underlying the current divide between the fortunes of corporate Japan and many ordinary Japanese are fundamental changes in Japan's employment conditions. After 10 years of stagnant growth -- Japan's economy has expanded at a pace of around 1 percent a year over the last decade -- companies have set aside their traditional reluctance to lay off workers to reduce costs. Even among those companies that are hiring again, few are taking on large numbers of new full-time workers, turning instead to lower-paid part-timers and contract employees.
Kenichi Ooya, 37, says that even though he is taking home more money this year from his job at a marketing company in Tokyo, he is careful about how much he spends.
"I have two children and I'm worried about the future," he said. "The economy might be getting better, but that is only because many companies are cutting costs by laying people off."
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