Bloomberg the Company

Bloomberg Anywhere Login

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Follow Us

Industry Products

Businessweek Archives

The Surging Yen Is A Real Drag


Business Outlook: JAPAN

THE SURGING YEN IS A REAL DRAG

The latest data on the Japanese economy give such mixed signals that they underscore how fragile the recovery is--and how detrimental the superyen could be to Japan's growth prospects in 1995.

Leading the negative news was an unexpected annual-rate drop of 3.4% in the fourth-quarter gross domestic product. And signs of softness continued into early 1995. The jobless rate was unchanged in February at 2.9%, while the ratio of job offers to applicants slipped to .65, from .66 in January. The ratio has hardly moved in a year (chart).

Little wonder then that consumer spending fell at a 2.5% annual pace in the fourth quarter and started January with a 4.2% drop from a year earlier. Moreover, household buying may not pick up soon. The spring wage negotiations are expected to result in near-record-low pay raises this year.

However, other signs point to strength in Japan's economy. Housing starts in February were up 1.8% from a year ago, helped by low-cost government loans. Car sales last month rose 11.2% from March, 1994. And despite the yen and the Kobe earthquake, industrial production in February increased 1.9% from January. Furthermore, the Ministry of International Trade & Industry forecast that March output rose an additional 2.3%.

These diametric signs may be why the Bank of Japan did not cut the official discount rate on Mar. 31, choosing instead to nudge overnight lending rates to 1.75%, equaling the record-low ODR. The lack of an ODR cut disappointed financial markets, which had hoped for a bold BOJ move to weaken the yen and lift the economy. Indeed, maintaining industry's momentum will be hard given the drag on exports from the surging yen.

The door is not closed on an ODR move. January's consumer spending drop means that first-quarter GDP could be in or near negative territory. Back-to-back GDP declines would raise fears of a triple dip in the economy, giving the Bank of Japan little choice but to cut the discount rate.BY JAMES C. COOPER & KATHLEEN MADIGAN


LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus