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Saturday, Nov. 17, 2012
Nip the recession in the bud
The Japanese economy has entered a state of recession. The Cabinet Office on Nov. 12 announced that Japan's gross domestic product in real terms in the July-September period declined 0.9 percent from the April-June period for an annualized decline of 3.5 percent.
This represents the first GDP decline in three quarters (nine months). Exports and production are falling because of a slowdown in the global economy attributed to the European sovereign debt crisis. It is important that the government sense the crisis and quickly take necessary measures to shore up the economy and prevent a deep recession.
Exports in the July-September period dropped as much as 5 percent from the April-June period as exports not only to Europe but also to Asian countries suffered a setback.
Consumer spending, which accounts for some 60 percent of GDP, fell 0.5 percent — for the second straight quarterly drop — mainly because of the end to subsidies for eco-friendly cars and sluggish television sales. Although investment in public works projects increased 4.0 percent due to 3/11 disaster-reconstruction efforts, and housing investment rose 0.9 percent, these investments were not strong enough to push up GDP.
A worrying factor is that capital investment slipped 3.2 percent from the previous quarter — the first decline since April-June 2009. Enterprises are holding back on capital investment because of uncertainties about the nation's future economic prospects.
The Cabinet Office on Nov. 6 made public the coincident indicator for September, which shows current economic conditions. The indicator has worsened for six straight months, making it clear that the Japanese economy is shrinking.
Although the government announced an emergency measure to underpin the economy on Oct. 26, it amounts to just ¥422.6 billion, which will raise the GDP only by 0.1 percent. The current political morass is preventing the government and the Diet from taking effective economic measures to buoy the economy. Because the Lower House has been dissolved, it is very likely that a supplementary budget for fiscal 2012 won't be submitted to the Diet until after the turn of the year. Still, the government should rack its collective brain to find ways to underpin the economy.
The Bank of Japan carried out quantitative easing Oct. 30 by increasing its assets purchase fund to ¥91 trillion and deciding to provide low-interest funds to banks, following an earlier quantitative easing in September. But the measure has not resulted in brisk capital investment or a lower yen value.
The government and the central bank have no time to waste. They must take measures to pull the Japanese economy out of its long-running state of deflation.