• Kyodo

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The Organization for Economic Cooperation and Development on Tuesday revised upward its economic growth projection for Japan in 2000, saying the Japanese economy appears to be on a recovery path.

The OECD projects seasonally adjusted growth of 1.7 percent for the Japanese economy in calendar 2000, up from its previous projection in December of 1.4 percent growth. Its forecast for 2001 is 2.2 percent.

“Despite difficulties in interpreting economic data for the second half of 1999, the recovery now appears to be in place in Japan, led by exports and business fixed investment and inventory accumulation, and deflationary risks are easing,” the OECD said in its semiannual Economic Outlook.

The OECD’s forecast is more optimistic than that of the International Monetary Fund, which projects growth of 0.9 percent in 2000.

The Japanese government, meanwhile, is projecting a growth rate of 1 percent for fiscal 2000, which began April 1. Despite this rather optimistic forecast, the OECD said it remains uncertain whether Japan’s recovery is solid.

“The trend of growth in private consumption remains sluggish and, with the pursuit of corporate restructuring, uncertainty lingers as to how solidly based the recovery is,” it said.

The OECD recommended that Japan maintain its ultraeasy monetary policy to sustain the recovery, but said interest rate hikes may become necessary once it firms.

“It remains necessary for the Bank of Japan to maintain an easy monetary policy stance,” it said. “As the economic recovery strengthens and deflation risks dissipate, this may entail a gradual and small increase in interest rates.”

The central bank adopted a policy in February last year of guiding the target rate for unsecured overnight call loans as low as possible to boost economic activity.

On the fiscal front, the OECD said, “While strong deficit reduction may not be appropriate in the short run, it is necessary to start preparing for major consolidation measures in the medium term.”

“In this regard, the establishment of a medium-term fiscal plan could provide the Japanese authorities with an important tool to consolidate the budget in an orderly and credible way.”

The organization reiterated the importance of accelerating regulatory reform.

“It is important to continue to make the economy more dynamic through the speedy implementation of structural reforms in product and labor markets and to pursue restructuring in the corporate sector and in some areas of the financial sector,” it said.

The OECD projects Japan’s unemployment rate will rise to 4.8 percent in 2000 and 2001, from 4.7 percent in 1999.

As for the world economy, the prospects “are brighter than they have been for some time,” the OECD said.

“OECD-wide output growth for this year is projected at 4 percent, the fastest pace in more than a decade, before slowing to 3 percent in 2001.”

Worldwide economic growth, including non-OECD economies, “may rise some 4 percent this year and next” because of a strong and widespread rebound in economic activity outside the OECD, it said.