Japan: Crawling In The Right Direction

Japan's economy may have grown in the first quarter, but the future remains rocky. Special factors--including the surging yen and the North Korean nuclear crisis--raise the uncertainty factor in Japan's outlook.

For now, the good news outweighs the bad. In its June Economic Outlook, the Organization of Economic Cooperation & Development forecasts the economy to grow 0.8% in 1994 and 2.7% in 1995. Those projections are up from 0.5% and 2.3%, respectively, in the December outlook.

Also, the June 7 report from Japan's Economic Planning Agency (EPA) notes that the economy may have hit bottom, with bright spots in public-works spending and housing. Housing starts, lifted by government lending programs, rose 4.6% in April, to a 1.59 million annual rate.

Some businesses are also doing better. A survey of 1,097 companies by the Wako Research Institute showed that corporate finances improved in the year ended in March for the first time in four years. And outlays for plants and equipment will increase 1.1% in the fiscal year that began Apr. 1, says the Ministry of International Trade & Industry. Nonmanufacturing will account for all the gain.

Ailing manufacturers, meanwhile, expect to cut their capital budgets by 3.5% this fiscal year. That's because the strong yen continues to hammer Japanese exports. As a result, industrial production fell 1.4% in April.

One of the bigger surprises recently is the hint that the worst may be over in Japan's labor markets. The unemployment rate fell to 2.8% in April, from 2.9% in March (chart).

Some private forecasters had expected the jobless rate to hit 3%--a psychologically critical high mark that has been breached only once in 35 years of record-keeping. So, too, the ratio of job offers to applicants may have bottomed out last quarter, at about two offers to every three applicants.

The slightly better tone of the job markets contributed to a rise in the EPA's March index of consumer confidence. The improvement also comes as Japanese consumers receive the first of a two-stage tax cut. Fewer job jitters increase the chances that households will save less of the money and will, instead, spend it. And that extra consumption is the key ingredient for a solid Japanese upturn in the second half.

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