The Cabinet Office said in its monthly economic report for October that the current economic expansion, now in its 57th month, has tied Japan’s longest “boom” of the postwar period, which occurred during the second half of the 1960s. With the current economic recovery expected to continue, it is certain that Japan will post its longest postwar boom in November. But this expansion is of an unfamiliar type, as people barely feel any of its benefits.

This is because the long period of deflation still casts a shadow over economic activities, and the economy’s growth rate is very low. Typically, the report avoided declaring that the economy has exited the long tunnel of deflation. An explanation by a Cabinet Office official aptly sums up the current conditions: The economy is not in a state of deflation but has yet to reach the stage where the government can announce a full departure from it.

During the Izanagi boom, which lasted from November 1965 to July 1970, the economy achieved a double-digit annual growth. By contrast, the annual average growth rate of the current boom, which started in February 2002, is 2.4 percent, about one-fifth the growth rate accomplished during the Izanagi boom. Prices rose by about 5 percent annually during the Izanagi boom, but workers’ wages nearly doubled over the period, contributing to increased sales of the “3C’s” — cars, coolers (air conditioners) and color TV sets.

The situation this time is quite different. Nominal wages at enterprises employing 30 or more workers in 2005 were 1.9 percent less than in 2002 on a per capita basis. Enterprises tended to hold off on raising their employees’ wages while making restructuring efforts to curtail surplus labor.

The practice of hiring nonregular workers such as part-timers and temporary workers dispatched from agencies also has spread because their wages are usually lower than regular workers. Now nonregular workers account for 30 percent of the nation’s workforce. As a result, consumption has not yet become the main driving force of economic recovery.

The activities of enterprises that have improved their profits through restructuring efforts appear to be the main engine of the current economic recovery. Enterprises also benefited from the Bank of Japan’s quantitative easy-money policy. Swift disposal of bad loans also contributed to the overall improvement of the economy. Plant and equipment investment planned by major enterprises for fiscal 2006 expanded by 11.5 percent from the 2005 level.

A BOJ report shows that the coincidence index, an indicator of the state of current business activities, topped 50 in August for a fifth consecutive month. For the business year ended March 31, 2006, major enterprises registered their fourth straight annual increase in both income and profits. The government report says spillover effects from the corporate sector are reaching the household sector. But personal spending has been weak. Through August, monthly consumption spending by workers’ households had decreased for eight straight months.

While domestic production is moderately increasing, partly supported by brisk plant and equipment investment, exports and imports are leveling off. The government is carefully watching the movement of the U.S. economy, which influences global economic conditions, as well as inventory adjustments within the information technology sector in both Japan and the Asian region.

U.S. Federal Reserve Chairman Ben S. Bernanke said in early October that a “substantial correction” in the housing market is expected to trim about one percentage point off the U.S. economic growth rate for the second half of this year. The government also calls attention to the movement of crude-oil prices.

Japan’s current economic expansion does not appear steady enough to be sustained. While enterprises as a whole are enjoying good business, workers are not receiving commensurate benefits from good corporate performances. Within the corporate sector, gaps in economic improvement exist between major and smaller enterprises and between manufacturing and nonmanufacturing enterprises.

While urban areas are prospering, economies in the countryside are suffering, mainly due to the government’s policy of curbing public works spending.

The government should pay attention to the need to spread the benefits of the economic recovery, including to households, and to reduce various gaps. It should pursue multipronged policy goals: improving labor market conditions, reducing wage gaps between regular and nonregular workers, lowering barriers for entry into business markets, encouraging innovation by enterprises, and implementing deregulation to help smaller and nonmanufacturing enterprises strengthen their ability to increase profits.

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