The government's monthly economic report for March raised its evaluation of the economy for the first time in eight months, saying it "has been picking up steadily." It appears that a second dip has been avoided, but the deflationary trend is a cause for continuing concern.
In February, the government announced that Japan's GDP for the October-December quarter expanded by an annualized 4.6 percent from the previous quarter. It now has revised that figure downward to 3.8 percent, mainly because of shrinkage of investment in plants and equipment. Exports to China and other Asian countries are strong, and domestic production is increasing.
Incorporated enterprise statistics for the October-December quarter show that current account profits of all industries doubled from a year earlier — the first increase in 2 1/2 years. Economizing on personnel and other costs greatly contributed to increased profits. It is too soon, therefore, to conclude that the corporate sector has completely recovered.
Wages in January increased 0.1 percent from a year before. Despite the small margin, this was the first increase in 20 months. The unemployment rate fell to 4.9 percent in January, 0.3 percentage point lower than in December. It was the first time unemployment was below 5 percent since March 2009, but this in itself does not warrant great optimism.
The Japanese economy is underpinned by exports and government stimulus measures. Outlays for public works projects will be 18.3 percent less in fiscal 2010, which begins April 1, than in fiscal 2009.
The government must not hesitate to take additional stimulus measures, if necessary, to keep the economic recovery going. The government should also flesh out its new economic growth strategy, which envisages creating consumer demand worth ¥100 trillion in environment-, tourism- and health-related industries.