RE: Japan. No surprise here other than the fact that the Japanese recognize their economy is still slumping. Jeff
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Japan Says Economy Still Slumping
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Story Filed: Tuesday, February 16, 1999 08:30 AM EST
TOKYO (AP) -- Despite some scattered signs of improvement, Japan's economy remains in a slump and could be hurt by rising long-term interest rates, the Economic Planning Agency reports.
The economic report was released Tuesday as Japanese officials disclosed fresh steps to curb the rate rise.
The governmnet will reduce long-term bond issuance next month and resume purchases of bonds by a public investment fund. Both measures aim to lower rates by reducing the supply of bonds.
''These steps should have a positive impact on long-term interest rates,'' Finance Minister Kiichi Miyazawa said.
The yield on the benchmark 10-year Japanese government bond has soared above 2.0 percent in recent weeks from around 0.7 percent last September, pushed higher by expectations of a massive supply of bonds to fund the government's fiscal stimulus plans.
Today, the 10-year bond yield fell to 1.985 percent from Monday's finish of 2.140 percent.
A decision last month by the government to stop buying bonds through its Trust Fund Bureau, which manages public pension funds and money from the postal savings system, was one factor triggering the rise in interest rates.
In its February report, the Economic Planning Agency said there were some bright signs in the economy, such as a pickup in residential construction and a declining rate of bankruptcies.
But overall personal consumption continues to suffer, as workers have become increasingly frugal due to falling wages, and the economy remains in an ''extremely severe'' state, the agency said.
The agency gave the same assessment last month.
The report said there are few signs of substantial improvement in the economy. Though the pace of deterioration has slowed, there remain key downside risks. The most pressing risk is the recent rise in long-term interest rates, the agency said.
''Though the rise in interest rates hasn't had a negative effect on the economy yet, a continued rise would pose downside risks for the economy,'' said Takashi Omori, director of the national economic division at the Economic Planning Agency's research bureau.
Rising long-term interest rates have raised concern recently among some Japanese officials who fear that higher interest rates could offset the effects of the government's massive fiscal effort to put the economy back on track.
In a move partly to appease that concern, the Bank of Japan on Friday cut its target for the overnight call rate to around 0.15 percent from an average of 0.25 percent, and announced a range of other measures designed to boost money market liquidity and smooth corporate funding.
Omori said the effects of the monetary easing weren't reflected in the latest economic report.
Many analysts contend the central bank's move will only provide minor support for the economy and will do little to cap a further rise in long-term interest rates.
Although the Economic Planning Agency report noted some favorable signs in the economy, private economists have pointed out that most of those signs come with caveats.
The agency said that housing investment, for instance, is improving in some areas, buoyed by a pick up in sales of apartments and residential housing. New housing starts rose 5.6 percent in December from the previous month, after falling 5.2 percent on month in November.
But economists said the rise in sales could be attributed to a ''rush to buy'' before rising interest rates filter through to the housing loan market.
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