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To: Bobby Yellin who wrote (28274)	2/15/1999 8:06:00 PM
From: goldsnow	Read Replies (2) \| Respond to of 116764

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. ©1999 Bloomberg, LP. All rights reserved. Terms of Service and Trademarks.