For the first time since February 2006, the Cabinet Office, in its monthly economic report for May, upgraded its overall assessment of the economy. The Bank of Japan also raised its assessment of the economy for the first time in two years and 10 months. BOJ Gov. Masaaki Shirakawa said the economy has already passed the “free fall” period. The office’s report says, “While the economy is in a difficult situation, the pace of deterioration has moderated.”

These rather optimistic views come despite the government’s earlier announcement that Japan’s gross domestic product for the January-March period contracted from the previous quarter at an annualized 15.2 percent in real terms. The fact is that improvement has been seen in industrial output and exports, and in the consumer mind.

Economic stimulus measures are also exercising their effect on the economy; inventory adjustment is making progress; and positive signs are seen in the overseas economic climate, especially in China. Mr. Shirakawa said, “GDP is showing signs of improving significantly in the April-June quarter,” compared with the previous quarter.

But as both the BOJ and the Cabinet Office admit, domestic downside risks remain. Consumer spending has been sluggish. A decrease of nearly 20 percent in the amount of summer bonuses to be paid by major companies is likely to damp consumer spending.

The possibility of deflation cannot be ruled out. In March, nationwide consumer prices, except perishable food prices, dropped by 0.1 percent from a year before — the first drop in 18 months. Deflation means less income for companies, thus leading to lower wages or worker dismissals and eventually to less consumer spending.

With the unemployment rate for March at 4.8 percent, the job situation is far from good. The Cabinet Office’s report says, “The employment situation, which is worsening rapidly, is severe.” Amid the uncertainty, the government should carefully monitor economic conditions and, along with enterprises, maintain efforts to put the economy back on a path of steady growth.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.