Japan's economy is weakening, monthly report says

TOKYO
(April 13, 2001 11:41 a.m. EDT ) - Japan's economy is weakening and its prospects for a recovery from the worst slowdown since World War II are dimming, the government said Friday in a closely watched monthly report.

The report for April said the economy continues to edge toward a self-sustaining recovery. But it said slowing output at the nation's factories and mines and shrinking corporate investment in new equipment are hurting the chances of a rebound.

"The economy is weakening," said the report, which is compiled by the Cabinet Office.

It was the first time since September 1995 that the government has said that the economy is weakening in a monthly report.

Friday's report also said the economy suffers from "moderate deflation" - or continuing price declines. It was the second straight month that the government has warned of deflation, which can lead to a downward economic spiral by pushing down corporate profits and people's income.

Economic Minister Taro Aso said that economic conditions are severe and that a recession is "possible" in the months ahead. He urged the government to consider an extra budget to boost growth.

The grim government assessment was the latest piece of bad news for the world's second-largest economy, which so far has failed to emerge from a decade-long slump.

Last week, the central bank governor, Masaru Hayami, said growth has come to a standstill, and blamed slowing exports. Worried about the stagnant economy, the Bank of Japan moved to push interest rates to zero last month, making it cheaper for banks to borrow money.

Exports have long been the driving force behind Japan's economic growth. But the cooling U.S. economy has dampened demand for Japanese exports.

Japan also unveiled an emergency package earlier this month that set a two-year deadline for major banks to dispose of their riskiest bad loans, estimated to total 13 trillion yen ($104 billion).

The non-performing loans - a legacy of the collapse of Japan's asset-inflated economy of the late 1980s and early 1990s - have crippled the nation's economy.

The April report pointed to five key areas of the economy that remain depressed: industrial output, corporate profits, business sentiment, employment and housing construction.

The government downgraded its assessment of the domestic labor market to reflect the fall in job offers in February. A deterioration in the job market, near-record high unemployment and falling incomes have made consumers less willing to spend their paychecks - a large contributor to growth.

Another major concern is the worsening outlook business investment - one of the main areas of private sector growth in Japan. Decreasing machinery orders in recent months indicate corporate investment in new equipment could wane later in the year.

Late last year, Japan set a target of 1.7 percent growth for fiscal 2001 through the end of next March. But private economists believe that the government's forecast is too optimistic.

News Copyright © 2001 Interest!ALERT

-----