Japan struggles to put economy on recovery track

TOKYO : As Japan continues to struggle to put the economy firmly back on the recovery track, it is fast being overtaken by China as the world's second largest economy.

But Japanese leaders are hopeful that growth in 2011 will pick up pace, helping the economy to avert a double dip recession.

It has been a year of the good and the bad in what is arguably Asia's largest economies.

The hot summer in Japan has contributed to brisk buying of air conditioners, cold drinks and ice cream - anything to keep cool.

And shoppers rushed to purchase green cars as well as flat screen TVs and other green electronics before government incentives were reduced or cut.

However, exporters were hurt by weak overseas demand due to the strengthening Japanese yen, which hit 15-year highs.

In September, for the first time in more than six years, the Bank of Japan (BOJ) and the government intervened in the financial market, pouring in 2 trillion yen. And in October, the Bank of Japan slashed its key interest rates to near zero to stimulate the economy.

The central bank also began to purchase assets worth 5 trillion yen (US$56 billion) from lowly-rated companies.

And in the new year, it is expected to take further monetary easing measures.

Takahide Kiuchi, chief economist at Nomura Securities, said: "We expect BOJ will increase amount of asset purchase from the current 5 trillion yen to 10 trillion yen, at maximum, at the beginning of next year because of pressure from the government.

"Government is likely to put more pressure on the BOJ to take further action to stabilise the currency market."

Meanwhile, the government is itself under pressure to revive the job market - seen as one of the toughest ever for new graduates.

There have been no signs of companies increasing jobs, although the numbers show that wages have increased. Some economists viewed this as one of the reasons Japan will avert a double dip recession.

But they also noted that deflation - one of the big headaches for the economy - may linger for a while.

Mr Kiuchi said: "We expect negative growth of CPI, decline of CPI will continue until the end of year 2011. We expect slight increase of prices in year 2012. But the timing we can declare end of deflation could be year 2013 or 2014. Anyway, it's difficult to overcome deflation in the near future."

Economists are optimistic that the global economy will start to pick up again from April - and that may help Japan as demand for its exports increases.

By Michiyo Ishida
Source: www.channelnewsasia.com