Third consecutive rise in Japanese economic forecasts

07-14-2009 09:22

The Japanese economy is improving, on which its administration increased the forecast for the Japanese economy for a third month on the back of improving foreign demand and due to stimulus packages boosting household spending. The situation of the Japanese economy remains worrying despite the weakening recession, the Cabinet Office stated today, while previously it commented that some parts are showing indications of a recovery.

Extra spending

The current Prime Minister of Japan, Taro Aso, invested 25 trillion Yen ($271 billion) in additional spending which boosted consumer sentiment as it reached a 18-month record high in June, proved by the Cabinet Office data today. The Japanese administration uprated its exports outlook, business sentiment and consumer spending, which covers more than 50% of its economy.

Fragile recovery

Kyohei Morita, chief economist at Barclays Capital, commented: “The stimulus measures show only few results and the recovery will probably be rather fragile.” The Japanese administration uprated the forecasts three successive times in the period March – May 2002, followed by the longest post-war period of growth. That period of expansion lasted until October 2007, after which the most extreme post-war slump in the Japanese history began, which frustrates the possibility that the LDP (Liberal Democratic Party) prolongs its position as the ruling party in lower house elections of August 30th.

Time to rehabilitate

Japan’s Economic and Fiscal Policy Minister Yoshimasa Hayashi, stated: “Japan is not facing a period of recovery, it needed urgent help and now it will enter a period of rehabilitation.”

Economic downturn revives

For the first time in a year, household spending increased in May. Every Japanese resident received 12,000 Yen from the Japanese government and it also provided inducements to stimulate the purchase of environmentally friendly electronics and subsidies for acquiring fuel-efficient vehicles. Fumihira Nishizaki, director of macroeconomic analysis at the Cabinet Office, stated regarding the stimulus packages: “They begin to show results progressively. However, it’s not unlikely that the economic downturn will revive.” Nishizaki mentioned the weak situation of the financial markets, the deteriorating job market and the insecurity regarding the future path of foreign economies.

Five-year high

In May, unemployment increased to the highest level in 5 years; 5.2%, while employment proved to be the most scanty since record keeping began. The Nikkei 225 Stock Average dropped 11% after it posted the highest level since eight months on June 12th.