Japan hobbles along the path to recovery

By Coco Kubota

TOKYO (DPA): Japan's economy emerged from its darkest tunnel this year but, despite gradually rising consumption, analysts predict Asia's powerhouse will take another three years to fully recover.

A year ago, prominent business figures like Sony chief Norio Ohga warned that Japan was on the "edge of collapse".

Weighed down by a regional slump, the economy was "going through its darkest period", according to Taichi Sakaiya, the head of the government Economic Planning Agency.

Since then, much painful restructuring has helped Japan on the road to recovery -- but the bitter medicine has also had the effect of lowering the feelings of job security essential to boosting consumer demand and turning around the economy.

Yet the only thing that will get the economy out of its doldrums will be improved consumer spending, which accounts for some 60 percent of Japan's gross domestic product (GDP).

"The current state of private consumption is uncertain at best," said Akio Yoshino, senior economist at SG Yamaichi Asset Management. "I expect that it takes another three years to fully recover."

The households of salaried workers, which account for about 60 percent of Japan's total household spending, have been reluctant to spend money in a big way ever since the "bubble economy" burst in the early 1990s.

According to recent government figures, the households of salaried workers spent less in October than they did a year earlier, the third consecutive year of such drops.

Average spending per household was 333,401 yen (US$3,268) -- down an inflation-adjusted 2.4 percent.

Analysts point to strong deflationary pressure caused by ongoing corporate restructuring. Major job cuts have heightened concerns about job security, long taken for granted in Japan.

Corporate giants are now shedding jobs like never before. The NEC Corporation plans to cut 15,000 jobs, about 10 percent of the group's workforce, by fiscal 2001.

Nissan Motor Company Ltd plans to reduce production capacity in Japan by 30 percent and to cut 21,000 jobs worldwide in an effort to pull itself out of the red.

Unemployment, virtually non-existent in Japan for many years, grew to more than 3.1 million in October -- up from 2.9 million a year earlier, pushing the unemployment rate to 4.6 percent.

The jobless rate peaked in June and July at 4.9 percent before declining to 4.7 percent in August.

Joblessness is not the only new social evil Japanese are coming to terms with.

Analysts say consumers are also concerned about the fate of their social security system as society ages and proportionally less workers will have to support more retirees.

Not all the news is grim, said the economist Yoshino, who points to a number of positive indicators amid the gloom.

"There are some good signs which have helped improve consumers' sentiment," he said, "such as a recent rise of Tokyo stocks and the government's announcement of a new economic stimulus package."

The key Nikkei index, which hit a post-bubble low of 12,879 on Oct. 9, 1998, has been rising on expectations of a recovery. It briefly topped the 19,000-line in late November for the first time in 27 months.

The Nikkei has been rising, particularly after the Bank of Japan decided in February to guide key short-term interest rates -- the rates at which it lends to banks -- effectively to zero percent.

A rise in the stock index is good news in that it boosts the profits of Japanese companies, but it does not directly improve consumer spending in a country where only 4 percent of individuals invest in the stock market.

Despite the uncertainty caused by the painful measures, some experts say that Japan needs even more bitter medicine. Yoshino said Japanese companies need further cost cutting, mergers and acquisitions as well as corporate restructuring.

Japan's traditional emphasis on loyalty to employees above all means that companies carry at least 2 million surplus workers, analysts say. This has kept the average return on equities down at 3 percent, compared with 20 percent for the United States.

"Corporate restructuring is good because it enhances longer- term profitability," said Yoshino.

Analysts say the Japanese government's 18-trillion-yen economic stimulus package announced in November -- the country's ninth since the bubble burst -- also helped improve consumer sentiment.

The new package aims mainly to help small and medium-sized companies and venture companies, which suffer from a credit crunch. The government hopes to spur domestic demand by direct fiscal spending of an estimated 6.5 to 7 trillion yen.