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OSAKA (Kyodo) The chief economist at the Asian Development Bank has painted a rosy picture of Japan’s economy, stating that it is posting sustained growth and is moving toward a potential growth rate of 2 percent a year.

Japan is enjoying growth in personal consumption and business investment, as well as improving employment conditions, according to Ifzal Ali. In this regard, he cited a five-year high in Japan’s core machinery orders for June, as well as a seven-year low in the unemployment rate for the same month.

“All of these together indicate that the Japanese economy is on a recovery track,” Ali said on a visit to Osaka earlier this month. “Our view is that Japan’s potential rate of growth is about 2 percent per annum. And it is approaching that rate now.”

Ali’s comments match an announcement by Economic and Fiscal Policy Minister Heizo Takenaka, who said last week that Japan has emerged from an economic lull. Takenaka cited pickups in exports, rising personal expenditure, and progress in inventory and production adjustments in the information technology sector.

Developments on the Tokyo Stock Exchange reflect optimism over the world’s second-largest economy, with the Nikkei average recently rising above 12,000 — the highest level in four years.

Ali is also upbeat about China and India, although high oil prices are likely to push down Asian growth rates in 2006.

“We are bullish on the continued robustness of developing Asia’s economy,” he said. The ADB projects a growth rate of 6.5 percent for developing Asia in 2005, 6 percent in 2006 and 6.3 percent in 2007.

Ali does not believe China will implement further currency reforms — including additional revaluations of the yuan — before the end of the year.

“Historically, when it comes to major decisions in economic policies, China has always moved cautiously, conservatively and incrementally,” Ali said.

“They always test the waters to assess the impact of change, like a laboratory experiment. If they find that it works, then they move ahead at a much accelerated speed.”

He indicated it will take some time for China to study the impact of yuan reform on export-import balances and the financial system.

On July 21, China scrapped the yuan’s decade-old peg against the dollar, allowing the yuan, also known as renminbi, to float against a basket of foreign currencies, which resulted in an initial revaluation rate of 2.1 percent against the dollar.

The revaluation rate, however, was well short of the 10 percent revaluation pursued by the administration of U.S. President George W. Bush in order to fend off mounting protectionist calls in Congress.

Ali believes China’s step toward a more flexible exchange policy will prompt other Asian economies to pursue greater rate flexibility.

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