Is Japan really on the road to recovery?

By Henry Hilton

At long last, Japan is getting a spot of good news. Hard on the heels of the trouncing of the Liberal Democratic Party by Yukio Hatoyama's Democrats, comes official confirmation that things might just be looking up for the recession-hit economy.

The release of the latest figures suggest that Japan has finally started to pick itself off the floor. Many won't believe it but the revised stats for the three months to June indicate that the economy grew by 0.6% and on this basis, Japan would then realize an annual growth rate of 2.3%.

Of course, that is hardly something that would normally make banner headlines. Yet for a nation that has just experienced its worse economic downturn in decades, it is a welcome boost for a fragile psyche. It is not going to instantly halve the number of homeless on the pavement in front of Governor Ishihara's skyscraper in Shinjuku or lead to an increase in business for the thousand-yen barber shops but it might gradually contribute to greater consumer confidence.

The experts, though, are being quick to introduce a host of caveats. They are already warning that future growth is likely to be pretty modest by past standards and some gurus reckon that once "the great contraction" of the world economy is history, we shall revert to little more than slim pickings at least until 2012.

All those dreaming of a return to fast growth on the back of government spending and extra-low interest rates are likely to have their hopes dashed. Finance ministers everywhere have little choice but to start reckoning with how to tackle their massive deficits and the need to cut back on what was intended to be temporary, emergency-style expenditure. Those cushions against the nastiest economic crisis in the postwar era will have to be removed once the signs of recovery are confirmed.

Yet the message being given out in the autumn of 2009 is pretty mixed. The optimists can point to gold touching $1,000 an ounce, Wall Street and London have been motoring ahead and the yen has reached 91 to the greenback. The pessimists, though, will counter this by arguing that the stock market rallies are likely to run out of steam shortly, oil prices are manageable, too much appears to rest on China's shoulders and that the dollar may still be seen as a safe haven in troubled times.

For Japan, the twin signals flashing red must be the stubborn unemployment rate and the worrying deflationary trend. Should consumer fears of an uncomfortable future persist, it is surely hard to envisage any sustained economic recovery based on domestic demand. Once again, it looks as if exports to faster growing economies within Asia will be required to do the heavy lifting. Yet given Japan's long-term demographic shifts and its general failure to boost productivity levels, this could well be asking too much of the electronics, computer and machinery sectors. Massive sales of PlayStation 3 and Wii can hardly get Japan out of its hole.

The Hatoyama government is clearly in for some nasty months. The fear must be that the current improvement in Japan's economic circumstances will be short-lived as the stimulus packages dry up and the necessary restocking by industry is completed.

After a political campaign that set out to reassure the public that its welfare problems and job prospects would be taken care of, the new cabinet will have little choice but to gently let the air out of the tires. Japan's prospects are certainly better than 12 months ago but there is still plenty of pain in store.

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The yen is at 91. I'm in export. LITTLE HELP HERE GUYS?

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Sure!!! Japan has been on the road to recovery now for about 20 years, right? I am just wondering when we get there. You see, I have this whole generation of kids in the backseat saying .... are we there yet? Are we there yet?

Now DPJ has taken the roadmap and is saying that we should have taken the last left. I don't know. I think maybe we need to stop and ask for directions.

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There is only so much consumers need. If you do not need something, why should you buy it?

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Klein2 : I totally agree with you. But Hatoyama prefers to ask Russia first ...

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The yen is at 91. I'm in imports. Cheers, Japan.

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The question should be; Does Japan know which is the right road to recovery? Because they have been doing a lot of off roading for the last 20 years with Toyota and the other motor manufactures dragging the country behind with their 4WDs.

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yen rate is 91 to the US dollar.. well, it's good on the surface, but think about the fact that japan rely on import/export businesses.. do those western counterparts want to buy japanese products while the exchange rate is like this?? strong yen is good, but it all needs to be balanced with other countries' economy..

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Certainly not a v-shaped recovery.

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Actually, I am kind of a Japan fan. Whatever you think about the economy, you gotta love how this society is not falling apart after so many years of bad news. People are slugging it out and muddling through, and it has been amazing to watch. I hope things get better for Japan soon. The people really deserve a boom, if even a short one.

Strong yen, high sales taxes (which are really low), high unemployment (which is really low), a widening income gap (which is not that wide), and a guy punching a kid in the face warrants national news coverage... Japan is seriously keeping it together pretty well considering the continuing gloom and ominous social problems.

Hey. They even have nigh universal health care, which is apparently impossible for some other advanced nations.

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Yen could get a lot stronger than 91 if Japan starts dumping its foreign currency reserves. I'm in import, hooray!

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