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Friday, June 27, 2003

Doldrums Japan

Japan continues its weary path. Nothing especially new or surprising here, but clearly with the number 2 and the number 3 economies heading stubbornly downwards, you have to give some though to what might be the implications for the number 1 economy. Also there's more for Joerg's list here: the rising youth unemployment as the big firms flexibilise and re-structure.

Economic data released on Friday showed that the Japanese economy remains locked in a low to no-growth pattern, with unemployment hovering near post-war highs and consumer spending continuing to fall amid a decline in wages. The April core consumer price index (CPI), a key gauge of deflation in Japan, remained unchanged at negative 0.4 per cent, year-on-year. Economists said deflationary pressures were likely to worsen amid the current trend of declining wages.

"Going forward, we see little possibility of a sustained rise in consumption and upward push on prices amid the downward trend in wages," said Mamoru Yamazaki, chief economist at Barclays Capital in Tokyo. "To the contrary, we expect retailers to continue lowering prices as they see consumers pinching pennies." Against this backdrop, May consumer spending fell 1.8 per cent, year-on-year, as households pared expenditures amid salary reductions and continuing high unemployment rates. The May unemployment rate remained unchanged at 5.4 per cent, just shy of a post-war high of 5.5 per cent last reached in January. The percentage of 15-24 year-olds who were unemployed reached 11.1 per cent, a rise of 30,000 from a year ago, almost double the unemployment rate of any other age bracket.

The increasing number of youths out of work reflects the increasingly stringent hiring practises of firms, which are cutting back on taking on new graduates amid cost-cutting and restructuring measures. It also reflects a social shift, as high school and college graduates increasingly shun the Japanese tradition of lifetime employment at a single company in favour of part-time jobs or pursuing creative interests.The one bright spot amid the dreary data were May industrial production figures, which showed output growth of 2.5 per cent, month-on-month, about 1 percentage point better than market expectations. Economists pointed out that over the past six to nine months, Japanese industrial production has been stable, whereas US output has been weakening.
Source: Financial Times

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