Japanese figures hint at revival

Could things be on the up for beleaguered Japan?

Japan's economy could be on the verge of climbing out of recession, new government figures suggest.

The data could make life easier for beleaguered Prime Minister Junichiro Koizumi as he struggles to put together a fresh economic stimulus package.

The key number is the diffusion index, which puts together a range of indicators to come up with an estimate of whether growth or contraction is on the cards.

For the first time in 15 months the coincident index, measuring current performance, crept up from 40.0 in February to 56.3 in March, above the boom-or-bust dividing line of 50.0.

And the leading index, intended to reflect predictions for the next three to six months, leapt to 80.0, up from a revised 54.5 the previous month.

On the up

The rise comes from an improvement in a basket of recent economic data.

This includes two straight months of gains in industrial output as the yen weakened and the global economy gathered pace.

Consumer spending has also improved, a key factor in slowing the deflation which has gripped the economy for some years.

Scepticism rules

But even though the figures will come as a relief to the government, it still has to come up with a plan to ease the worst recession in Japan since World War II.

News reports suggest a package of measures including lower taxes on interest, capital gains, and gifts of assets by parents to children, and a broader sell-off of heavily-indebted public corporations could emerge as early as Monday.

But domestic scepticism about Mr Koizumi's government is still widespread, a far cry from the massive popularity he had earlier enjoyed.

Hopes that Mr Koizumi would engage in genuine far-reaching reforms have faded since he sacked his foreign minister, Makiko Tanaka, earlier this year.

A number of scandals among ministers and senior figures in the ruling Liberal Democratic Party have reinforced the sense that nothing has changed, and that party infighting remains more important than tackling Japan's massive financial problems.

Going down

And international scepticism is just as strong.

Credit rating agency Fitch shrugged off criticisms from Japanese authorities after it downgraded government bonds last month.

The government had said the 'AA' rating was the same as that awarded to a developing country with weak competitiveness, gaps in its industrial base, and an economy a third the size of Japan's.

Fitch should explain the "analytical inconsistency", said a letter from Haruhiko Kuroda, Japan's top financial diplomat.

Fitch defended itself by saying that there were many more factors to be considered than those identified by Mr Kuroda - not least the question of the sustainability of public finances.

In a pointed reference to Japan's massive public debt of 140% of national output, Fitch president Stephen Joynt said that the public purse would continue to suffer despite huge foreign exchange reserves and high domestic savings.

"In the absence of corrective action, Japan could be caught in a debt trap from which it can only escape through monetisation or default," he wrote.

"Progress on structural reforms has, in our judgment, been slow."