The Cabinet Office announced Feb. 14 that Japan’s gross domestic product for the October-December period decreased 0.1 percent (0.4 percent annualized) in real terms from the previous quarter — for the third straight quarterly fall.

Although the pace of decline slowed from the July-September period — when GDP dropped 1.0 percent from the previous quarter — nominal GDP in the October-December period fell 0.4 percent (1.8 percent annualized) from the previous quarter, indicating that the long-running grip of deflation remains strong. Movement of nominal GDP is said to better reflect people’s feel about economic conditions than real GDP.

Apparently thanks to the aggressive economic policy of the Abe administration, the yen has weakened and stock prices have gone up. This shows that expectations for the Japanese economy are increasing. The important thing is to ensure that the nation’s real economy grows in a sustainable manner. The government and the Bank of Japan should take timely fiscal, monetary and growth measures as needed.

The central bank on Feb. 14 slightly upped its assessment of the nation’s economic conditions from “weak” in January to “ceasing to fall” in view of the pickup in the Chinese and U.S. economies. But the Japanese economy needs to be carefully watched.

While private consumption rose 0.4 percent in the October-December period from the previous quarter, exports declined 3.7 percent, causing a negative effect on the economy. But thanks to the weakening of the yen, carmakers now expect that their performance in the business year to March 2013 will be better than earlier expected. In contrast, some electronics makers are lowering their expectations due to their bad business.

Although the yen is weakening, it is not certain whether it will help exports to pick up overall because there are such downward risks as the sovereignty debt crisis in Europe and the “fiscal cliff” problem in the United States.

Another worrying factor is the deterioration of the Japan-China relationship over the Senkaku Islands dispute. The friction has increased since it was reported that Chinese naval ships, in separate incidents, locked fire-control radar on a helicopter and a destroyer of Japan’s Maritime Self-Defense Force.

Japan suffered a trade deficit for two straight years in 2011 and 2012, registering a record deficit of some ¥5.8 trillion in 2012. Its current account surplus in 2012 was the smallest since 1985. This shows that the ability of Japanese companies to earn money overseas is weakening.

While housing investment and public works increased 3.5 percent and 1.5 percent, respectively, in the October-December period from the previous quarter due to reconstruction in areas hit by the 3/11 disasters, investment by businesses dropped by 2.6 percent — for the fourth consecutive quarterly fall.

The ruling parties have decided to introduce fiscal 2013 tax measures aimed at helping businesses with research and development and equipment investment. It is hoped that Japanese companies will develop products that attract consumers and lead them to loosen their purse strings. Companies enjoying good business or holding large internal reserves should raise workers’ wages to help boost domestic consumption.

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