Slow but steady economic recovery

Japan’s economic prospects are not very bright due to the effects of the 3/11 earthquake and tsunami and the stronger yen. But it is not that the prospects are completely gloomy. The government’s monthly assessment of the economy for April released in mid-April by the Cabinet Office shows continued modest economic recovery since the disasters. Still the report says that recent developments “indicate that the Japanese economy is in a mild deflationary phase.” Both the government and the Bank of Japan should be more serious about this situation and take prudent measures to rectify the situation.

The report said that the economy is “still picking up slowly while difficulties continue to prevail due to the Great East Japan Earthquake.” The Cabinet Office revised upward its assessments of exports and the housing market, although it left unchanged its evaluation of the remaining 12 components. It also said that the falling rate of prices is slowing. Minister for economic and fiscal policy, Motohisa Furukawa, said that an upward trend in domestic demand is continuing. It is only hoped that this trend will accelerate so that the economy will be underpinned by strong domestic demand.

Although the car industry suffered greatly from the 3/11 disasters and flooding in Thailand in 2011, production and sales are picking up, partly thanks to government subsidies for eco-friendly cars. As to the conditions in the Tokai region where car industry-related manufacturing firms are concentrated, the Bank of Japan said in its report on regional economies, made public on the same day as the Cabinet Office’s report, that production is increasing with the car industry playing a leading role and that signs show economic recovery is continuing.

Retail industry as a whole is also on a path of recovery. But electronic manufacturing remains in bad shape. In the business year that ended at the end of March, Panasonic, Sony and Sharp together suffered a total loss of some ¥1.7 trillion, primarily due to the lackluster performances by their TV set divisions.

Outside Japan, the Eurozone sovereign debt crisis and a possible global economic slowdown could cause downside risk to the economy. In this situation, Prime Minister Yoshihiko Noda is preoccupied with his plan to raise the consumption tax, which could adversely affect the economy. He should pay yet closer attention to Japan’s economic conditions and take necessary steps.