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Monday, April 14, 2003

JAPANESE PERSPECTIVES

Take heart! Japan can beat deflation, create jobs through 2010: JBF


People are becoming increasingly wary of the condition of the Japanese economy and uncertain of its future. Some media commentators and economists speak as if the economic slump is going to continue for another decade, or even another century.

As an antithesis to such overly pessimistic views, the Japan Business Federation (Nippon Keidanren) released a report in January on its vision of Japan that said the economy still has high growth potential.

According to its estimates, Japan continues to enjoy an average annual growth rate of around 1.5 percent in total factor productivity, indicating technological advancement. Increasing such productivity will sufficiently make up for the anticipated decline in the labor force in coming years.

Based on this vision, Nippon Keidanren is compiling a more concrete, medium-term outlook for the nation's industrial structure. The aim is to draw up a road map that will help Japan overcome its deflationary pressures and achieve steady growth.

While many Japanese companies operate globally and boast a strong presence in many parts of the world, the upcoming report will focus on the state of industry and employment at home and try to express Japan's prospects in numerical terms.

The report will also try to project Japan's industrial strength through 2010, based on forecasts for final demand and the degree of dependence on imports, which were collected in a recent survey of Nippon Keidanren member firms.

According to the analysis so far, growth is mainly expected to occur in the services, electronics, communications, chemicals and automobile industries. Domestic industrial output is projected to grow by an average of 1.5 percent annually through 2010, even if deflation persists.

Of course, it is unlikely that all industries and manufacturing bases will survive. While manufacturing industries with advanced technologies and proprietary knowhow will likely keep the bulk of their operations in Japan, those who have lost their competitive edge in production costs will likely shift more of their operations abroad. If they don't, the industrial sector as a whole will be unable to increase profitability.

Such a process will inevitably impact employment. But the analysis by Nippon Keidanren suggests that, overall, everyone will have enough work in 2010 because the service sector will create 2.58 million new jobs that will make up for those lost in agriculture, forestry, fisheries, mining and manufacturing.

Furthermore, the analysis says that industrial profitability as a whole will improve by around 1 percent.

This is not wishful thinking ungrounded by fact, but the result of an objective interindustry analysis that was based on the trends predicted for final demand, degree of dependence on imports, manufacturing technology and employment in each sector.

Nippon Keidanren plans to compile the report shortly and will move ahead with private-sector-led initiatives to carry it out.

Yoshio Nakamura is a senior managing director of the Japan Business Federation (Nippon Keidanren).


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