The spectacle might be amusing were the consequences not so dire. With reliable predictability and periodicity over much of the past 10 years, Japanese officials have heralded the emergence of economic data indicating the end to a persistent period of slow growth. In a few weeks or months and sometimes days, the same officials discover new data that forces a reversal accompanied by explanations for the continuing slump that seems never to go away.
Japan's economic indexes all slipped below 50 percent in November for the first time in 23 months. Index readings over 50 percent are considered a sign of economic expansion, while readings under that benchmark signal an impending contraction.
The leading index indicates the condition of economic performance six to nine months hence while the coincident index gauges the current state of the economy, and the lagging index measures economic activity of the recent past.
In an announcement by the Cabinet Office, the leading economic index was lowered for November to 33.3 percent from its preliminary value of 57.1 percent. This large correction due to the fact that figures for the inventory index and machinery orders had not been available when the preliminary report was prepared. Meanwhile, the coincident index was revised down to 30 percent from a preliminary value of 42.9 percent, and the lagging index was upgraded to 42.9 percent from its preliminary position of 33.3 percent.
From 1990, Japan's GDP per capita has grown by only 0.6 percent. Estimates point to a feeble 1.5 percent growth rate in the current fiscal year up to March 2001. By contrast, the US economy has experienced an average growth rate of almost two percent over the same period of time.
Japan remains mired in a deflationary recession even though wholesale prices rose for the first time in three years during 2000. Since much of the increase can be attributed to rising energy costs combined with a weakening yen, it does not indicate a rebirth of business spending. When the yen hit 118 against the US dollar, it was at an 18-month low.
Indeed, bank lending was lower still. According to the BOJ, credit issued by banks in December fell almost 4 percent, year-on-year. This marks 36 months of continuous decline. After making adjustment for writing off bad-loans, overall lending was actually down almost 2 percent. This means that money supply growth also remains sluggish since credit creation is the primary mechanism for central banks to introduce fresh cash into the system.
With household consumption remaining soft, the elusive recovery has had to depend upon the corporate sector. Yet industrial performance remains weak due to slowing export demand and the deflation of the asset bubble in the high-tech sector.
There has been a decline in the growth of machinery orders that reflect spending on factories, offices and equipment. This important leading indicator accounts for approximately 15 percent of national income as contributed by business investment.
Now with growth in exports and capital spending decelerating and industrial production increasing at about half the pace forecast by economists, hopes for an incipient recovery are once again stillborn.
Unfortunately, as Japan's consumers and businesses are holding back on their purchases, the government continues to conjure up ways to spend for them. It appears that public sector spending formed the basis of much of the recorded new investment during 2000. Yet most of these funds were used ineffectively in that they did not add to sustainable gains in real output. Given that all of this must be repaid through taxes imposed on future activities, these small gains are likely to be offset by losses at a later date.
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