Mon, Sep 01, 2003 page12

• Is Japan's economy regaining some of its long-lost glitter?

  • NY TIMES NEWS SERVICE
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  With one lost economic decade, the glitter has gone from Japan's name.

  Newspaper headlines ask: "German Banks: Turning Japa-nese?" and "Has Taiwan Caught `Japan Disease?'"

  But now some of the sparkle may be back for the world's second largest economy.

  For the last six quarters, Japan's economy has expanded, leading to forecasts of 2 percent growth rates for this year and next. Company profits are up, business spending is up, bankruptcies are down, payrolls are expanding and the Nikkei stock index has increased 36 percent since April.

  When US Secretary of the Treasury John Snow arrived here Saturday on the first leg of an Asian tour, he found a country experiencing growth in a time of deflation.

  "Japan's economic fundamentals have finally changed for the better," Barclays Capital stated in a report that forecasts "a shift to a permanently higher-growth trajectory."

  While Japanese economists tend to be gloomier, the good economic news is scattering opposition to the re-election of Prime Minister Junichiro Koizumi at the Sept. 20 convention of the governing Liberal Democratic Party.

  "I have an impression that brighter signs are emerging gradually amid the severe conditions," Koizumi said Friday on a radio program about the economy.

  A strong victory at the party convention next month could prompt Koizumi to call national elections six months early, in November.

  "If he wins in a landslide, and if he wins the general election, he will have a strong mandate and a second honeymoon," Takatoshi Ito, a Tokyo University economics professor said this week. "I hope he takes that opportunity to carry out more reforms."

  Many economists say Koizumi has done little to reform the economy since coming to power in April 2001. They say Japan is merely embarking on its third cyclical upswing in a decade, pulled by new growth from its No. 1 export market, the US.

  "Optimism has emerged in the United States, and Japan's export sector has responded," said Takashi Kiuchi, an economist here.

  In Japan's globally competitive export trade, which accounts for about 10 percent of the economy here, investments are occurring again as sales soar for digital cameras, camera cell phones and flat-screen televisions.

  This rebound has caught the eye of foreign investors who have pushed the Nikkei Index up 35.9 percent since late April, when it hit 20-year lows. The index is back where it was a year ago, while Japanese investors have watched from the sidelines.

  "Japan was cheap, stocks had fallen back to level of 1983," Jesper Koll, Merrill Lynch's chief Japan economist, said of the market's fall last spring. "At that time, Japan economy was ?300 trillion. Today Japan's economy is a ?500 trillion," or US$4.3 trillion.

  To end deflation, the Bank of Japan embarked last spring on an unorthodox program of injecting yen into the economy: buying company stocks, extending loans to small- and medium-size enterprises, printing more money and paying cash for 38 percent of Treasury bond emissions -- a level seen in recent years only in Turkey, Venezuela and Argentina.

  This succeeded in lowering July's deflation rate, to 0.2 percent, the lowest in more than two years. Although prices have dropped for 46 months in a row, Koll, a self-confessed optimist, wrote an essay last week titled Sayonara Deflation.

  Deflation levels dictate Japan's real growth figures. In nominal terms, Japan's economic output numbers are flat. When adjusted for deflation, however, real economic growth is evident. Analysts have different views of what is happening.

  "Japan has made the transition from having a bloated high-growth corporate sector to an efficient shrinking one," Peter Tasker, Japan strategist for Dresdner Kleinwort Wasserstein, wrote in June.
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