Economy in 'Severe Situation,' Falling Wages Preventing Recovery, EPA
Says
Japan's Economy Remains in 'Very Severe Situation,' EPA Says
Tokyo, Feb. 16 (Bloomberg) - Japan's economy remains in a
''very severe situation,'' as high unemployment, falling wages
and cuts in corporate spending prevent a turnaround, the
government said.
''Recent economic trends in Japan reveal that personal
consumption is sluggish,'' said the government in its monthly
economic report. ''This is because income ... has been
decreasing.''
Without a boost in consumer spending, which accounts for
three-fifths of the Japanese economy, the world's second
largest economy isn't likely to pull out of its worst
recession in five decades.
The government expects the economy to grow 0.5 percent in
the year starting April 1, after contracting 2.2 percent this
year and 0.4 percent last year.
Companies are reducing wages and other costs as
recessions in Japan and other parts of Asia sap profits. In
December, wages fell 4.2 percent and the number of jobs shrank
0.8 percent.
The decline in profits is also putting pressure on
companies to cut investment. Corporate investment has been
hampered by cuts in bank-lending and is now being upset by the
rise in long-term interest rates, the government said.
The yield on Japan's benchmark 10-year government bond
rose to a high of 2.44 percent on Feb. 3, from a low of 0.695
percent on Oct. 10. It closed at 2.135 percent yesterday.
The rise in long-term interest rates prompted concern
that higher borrowing costs will hinder economic recovery, but
the Economic Planning Agency, which prepares the monthly
report, said the economy isn't yet showing signs of being
hampered by high interest rates.
On Friday, the Bank of Japan lowered the target rate for
overnight bank lending to 0.15 percent from 0.25 percent, in
effect increasing the amount of money the central bank injects
into the economy. Still, this will likely have little impact
on long-term interest rates.
The central bank has resisted political pressure at home
and from the U.S. to start buying bonds directly from the
government as a way of lowering interest rates.
The rise in long-term interest rates may boost the real
estate market. The monthly report said there are signs of
recovery in housing starts. That follows government steps to
keep housing loans low. Consumers want to take out loans to
pay for housing before interest rates rise.
The report also notes the decline in bankruptcies, and
attributes it to the government's expansion of credit
guarantees for small companies.
Small manufacturers have been boosted by government
credit guarantees which are aimed at helping companies borrow
money at a time when banks are reluctant to lend.
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