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Tuesday, November 16, 1999 Published at 07:07 GMT

Business: The Economy

Japan's tentative economic recovery

Industrial output is up but wages and demand remain weak

The Japanese economy is being dragged slowly back to health by growing demand for its products from bullish Asian neighbours, according to official state of the nation reports on Tuesday.

The Bank of Japan (BoJ) lifted its view of recovery in its November report, saying the economy was "turning to improve".

That is a step forward on previous months when it had stated that the economy had ended its deterioration.

But the BoJ said had been little sign of an early rise of consumer spending, or unemployment dropping, with exports the driving force behind the more positive outlook.

There had been some positive signs in labour market conditions which "suggest a slowdown of the decrease in the number of employees".

However, it warned the pain may not be over, as "firms strongly feel that they have excess capacity and employees".

Restructuring unavoidable

The BoJ said the Japanese economy was far from a full-scale recovery, citing the weak momentum in private demand.

The BoJ said the Japanese economy was expected to remain exposed to intensified restructuring and the sustained strength of the yen.

"Such restructuring is unavoidable to enhance mid-term growth ... and thereby that of the overall economy, although, in the short run, it reduces fixed investment and delays improvement in employment and income conditions, thereby discouraging household spending."

In addition, the central bank warned of the persistent deflationary pressure, despite easing pressure on prices.

The BoJ's report was in line with the monthly report from the Economic Planning Agency (EPA).

Government spending spree vital

The EPA agreed that the brightest point for the economy had been exports, while personal consumption remained at a standstill as incomes had languished, according to the agency.

"Recovery in private demand is weak, and the economy has not escaped from its severe condition, but with the effects of the permeation of various policies and an Asian economic recovery, the economy continues to improve moderately," the report said.

An EPA official stressed the importance of the 18 trillion yen ($170bn) stimulus package announced last week, saying the 5.6 trillion yen in public works and other infrastructure spending in the package would help maintain support for the economy.

Industrial production continued to recover, rising by a healthy 3.9% in the July-September quarter compared to the previous period, the agency said.

Despite the stronger yen, the agency upgraded its assessment of exports to "rising," from "modestly rising" last month, due to booming demand from Asia thanks to the economic recovery in that region.

But it added: "We can no longer say that consumer spending is in a state of a gradual recovery."

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