Japan's Economy Enters Record Post-War Boom

Nov. 22, 2006
Corporate profits are increasing, as is business investment.

Japan's economy has broken its post-war boom record although conditions have worsened slightly for the first time in almost two years, the government said Nov. 22. Asia's largest economy, which for years was beset by stagnant growth and on-off recessions, has been "recovering" for 58 months, outlasting the "Izanagi boom" of the 1960s named after a mythical god, the Cabinet Office said.

The report noted, however, that there was now "some weakness in consumption," in the first downgrade to its assessment since December 2004. "Corporate profits are improving and business investment is increasing. The employment situation is improving on a broader basis, though some severe aspects remain," the report said. Private consumption was almost flat while industrial production was increasingly moderately.

As for short term prospects, the economic recovery is expected to continue supported by the domestic private demand as high corporate profits currently observed feed into the household sector," the report predicted. The report marked another milestone for the world's second-largest economy, which is emerging from over a decade of deflation torpor after the asset price bubble burst in the early 1990s.

But not everyone shares the government's view on the length of the expansion. "I would query the concept that this has been the longest post-war boom in that really it's been three different expansions," said Richard Jerram, chief economist for Japan at Macquarie Securities. "You've had two export-led expansions and then for the past two or three years you've had a domestic economic recovery as well. But there hasn't been a seamless expansion as there appeared to be in the 1960s," he added..

Nor has the current expansion matched the double-digit pace of the Izanagi boom, when Japan was a fast-growing economic power still rising from the ashes of World War II. The economy has grown by just over 2% a year during the current expansion, compared with over 11% during the Izanagi boom as consumer splurged on new television sets, cars and other big-ticket items.

Now deflation is all but history, land prices have risen for the first time in 14 years, unemployment is near an eight-year low and companies have cleaned up their debt-laden balance sheets with many reporting record profits.

Japan last week posted stronger than expected third-quarter growth in gross domestic product with an annualized rate of 2%, but optimism was tempered by a fall in private consumption.

Japan also faces key challenges from a population that is both aging and shrinking -- putting strains on the labor market and the public finances -- as well as from rising interest rates after years of virtually free credit. Some observers have suggested that the downgrade to the government's assessment could make it harder for the Bank of Japan to justify another interest rate rise now, particularly in the face of pressure from the government for the central bank not to act too hastily.

Copyright Agence France-Presse, 2006

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