News that the economy grew in the April-June quarter for the first time in more than a year provided an opportunity for the Liberal Democratic Party to direct voters’ attention to its measures to fight the recession.
While economists acknowledged that the stimulus package did have a positive impact, they also warned that the outlook remains shaky and people are probably not feeling the rebound as strongly as the GDP data showed, with the unemployment rate standing at a six-year high and wages declining, including a sharp cut in summer bonuses.
“The LDP probably wants to emphasize its contribution to the 3.7 percent growth, but since the beneficiaries of the current recovery are limited, its claims may not resonate with many households or voters,” said Kyohei Morita, chief economist at Barclays Capital Japan Ltd.
He said the manufacturing sector is the main beneficiary of the economic rebound as overseas markets recover. But with manufacturers still reluctant to make investments and spend on personnel costs, the positive effects have not spread much to households or the nonmanufacturing sector.
“A far-reaching recovery that includes households and nonmanufacturing businesses is unlikely to be realized unless appropriate measures that stimulate household income are devised,” Morita said.
The Cabinet Office said Monday that Japan’s gross domestic product rose an annualized real 3.7 percent in the April-June quarter, allowing Prime Minister Taro Aso and economic and fiscal policy minister Yoshimasa Hayashi to say that a huge stimulus package prepared by the LDP-led government had helped the economy to expand for the first time in five quarters.
“We believe this is a fruit of the measures implemented so far,” Aso said at a news conference.
“We have concentrated on economic measures” to fight the global recession and reviving the economy will remain a top priority, he said.
His party is on the ropes, with polls showing that the Democratic Party of Japan is in good position to win the Aug. 30 election, so Aso is sure to emphasize any bright spots he can find.
The government introduced a huge largest stimulus packages to fight the global economic slump, including tax breaks, subsidies for fuel-efficient cars and an Eco-point system to reward purchases of energy-efficient consumer appliances, which helped buoy consumer spending.
Hayashi said the positive effects of the stimulus package are likely to increase from this point on, while also expressing hope the economy will shift to a self-sustained recovery phase after receiving a boost from the government measures.
Takuji Aida, senior economist at UBS Securities Japan Ltd., said the LDP has managed the economic slump well so far and implemented stimulus measures in the right order, focusing first on boosting consumption in a bid to help companies secure profits. Otherwise it would have ended up with no choice but to implement larger employment measures than it now needs, he said.
Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute., expects the DPJ’s economic initiatives to help buoy the economy a little more than the LDP’s, including the DPJ’s plans to offer child-raising allowances and to phase out highway tolls to support consumption. But if the DPJ fails to raise funds to finance the measures by cutting wasteful public spending, it may resort to issuing debt-covering bonds, resulting in a rise in interest rates, he cautioned.
No matter how the election goes, “there’s no changing the fact that the Japanese government needs to grapple with difficult tasks,” such as supporting the recent economic rebound while facing the need to tackle Japan’s ballooning deficit and surging unemployment rate, Shinke said.
The July unemployment rate is due out Aug. 28, just before the election, with economists saying it is just a matter of time before the rate hits a fresh record high.