The Japanese economy seems to have hardly improved in the past three months and appears likely to slightly worsen in the next three. This dim picture is painted by the Bank of Japan’s latest “tankan” survey, which sums up how business managers view their companies’ performances. The economic perception gained from the quarterly report, which was released last week, is not as good as was expected.
Japan’s economy continued to slowly recover for the first nine months of this year, judging from economic barometers as well as preliminary GDP figures for the third quarter of this year, July through September. Now the recovery appears to be marking time. Whether it will pick up or slow down in the months ahead remains to be seen. The key question is whether the surge of capital spending will smoothly lead to the expansion of consumer spending, the biggest engine for growth.
The tankan report is encouraging in some respects. Corporate earnings for fiscal 2000, ending March 2001, are improving. This is particularly true of current profits, a good measure of how much money a company is really making. These pretax profits are expected to rise more than 10 percent on average in all industries. Major manufacturers are looking for an average rise of 34 percent. Industry-wide capital spending is projected to increase anywhere from 3 percent to 3.5 percent.
While unemployment remains high, it is seen as less of a problem than before. That leaves sluggish consumer spending as the biggest drag on economic expansion. The good news is that yearend bonuses have on average increased slightly for the first time in three years. If this leads to a steady rise in income, consumers will begin to loosen their purse strings.
Another thing going for the economy is the recent passage of a supplemental spending budget featuring stimulus measures worth 11 trillion yen. It is uncertain, however, whether this package will put the economy back on its feet. Nevertheless, one can reasonably hope that the extra stimulus will at the very least prevent the economy from slumping.
With the economy sending a mixture of good and bad signs at a critical moment, it is a taxing time for economic forecasters. While some economists are bullish, others are bearish. It depends on how they read the economic data and upon what data they place importance.
Probably the most important message from the latest tankan is that the business outlook for the next three months has slightly deteriorated. Perhaps this is a sign that business managers are becoming slightly more cautious about the future, given the mixed economic picture. But this does not mean that they are getting pessimistic. The tankan’s message, while too important to be ignored, needs to be taken with a grain of salt. Rather than emphasize the dark side, the important thing now is to focus on the bright side and make it brighter.
At the same time, deregulation should be accelerated, given the limited effect of fiscal and monetary policy in stimulating the economy and the pressing need for economic structural reform. Deregulation may not quickly produce tangible results, but over the longer haul it will restructure and reinvigorate the economy.
Since the collapse of the asset-inflated economic bubble in 1990, Japan has given priority to short-term measures to boost the economy and stabilize the financial system. In the process it has put off the cleanup of bad debts and the resolution of problems besetting “old economy” sectors like construction. As a result, government debt has ballooned while structural reform has been delayed. That is why the economy has yet to achieve a sustainable recovery.
True, the government has been making considerable efforts to reduce or eliminate official restrictions on private-sector activity in recent years. For example, a report from an advisory committee on administrative reform covers 286 items in 13 sectors, including a proposal to scrap the NTT holding company, which is seen as a major obstacle to free competition in the telecom sector.
As a member of the committee puts it, “The gap (in deregulation) between here and abroad has widened despite the fact that we have tried (to reduce it) with a sense of crisis.” The gap may further widen unless the government tackles regulatory reform with a renewed sense of crisis. First, the changes proposed in the report should be implemented quickly. And then a new round of deregulation measures, including those in sectors such as education, medicine and welfare, should be put in place without delay.
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