Some analysts are revising upward their expectations for Japan’s economy and predicting stronger growth, although no one is forecasting vigorous recovery just yet.
The less pessimistic forecasts follow a recent rebound in Tokyo share prices, which reflect investors’ optimism about corporate recovery and help the books of debt-saddled banks.
“While Japan is still weak, the pace of atrophy has slowed substantially,” said Stephen Jen, chief currency economist at Morgan Stanley in London. “The market had been too bearish on the Japanese economy. If the U.S. economy does recover, so will Japan.”
Japan has been stuck in a long slowdown. For the first three months of this year, the economy barely grew. Analysts have been saying much depends on overseas recovery, especially in the United States.
The Nikkei average has recently climbed from 20-year lows of below 8,000 points to above 9,500 points as foreign investors grab shares.
While not declaring an end to deflation, Merrill Lynch said Monday it has revised upward the chances that Japan will emerge from deflation before the end of the fiscal year to 25 percent from 15 percent.
Deflation is a continuing drop of prices that deadens economic activity by reducing profits and salaries.
“A 25 percent probability by itself is insufficient to lead to expectations of a complete end to deflation,” said Takuji Aida, senior economist at Merrill Lynch in Tokyo.
Goldman Sachs revised up its forecasts for Japan’s economic growth to 0.8 percent for this fiscal year, up from 0.3 percent, and 1.2 percent for the next fiscal year, up from 0.4 percent.
Lehman Brothers also said Monday that it has revised up its second-quarter growth forecasts. , saying the pace of growth will pick up gradually in the latter half of the year, helped by reviving exports and some recovery in business investment.
Still, not everyone is optimistic.
“Not only do we believe it is a bit too soon to anticipate any fully fledged rebound in the economy, but a quick check of domestic price indexes shows that Japan is still not on course to escape from the scourge of deflation,” said Shuji Shirota, analyst at Dresdner Kleinwort Wasserstein in Tokyo.