Japan crawls out of recession

Japanese industry is investing less

Japan returned to economic growth in the first quarter of 2000, but failed to meet the target set by the government.

The size of the whole economy (GDP) increased by 2.4% in the three months to March, after two quarters of recession, giving an overall growth rate of just 0.5% for the whole financial year.

That was below the modest target of 0.6% that the government had promised to reach.

"The important thing is that we have posted positive growth for the first time in three years," Finance Minister Kiichi Miyazawa said.

But the figures were flattered by an extra day in the quarter due to the Leap Year, and without that growth would have barely been positive.

"If adjusted for the Leap Year factor, Japan's year to March GDP growth would have been 0.1%, instead of 0.5%," said Koji Hamada, director of the Economic Planning Agency's Economic Research Institute.

The figures are expected to put the government on the defensive at the upcoming elections, after a series of stimulus packages have failed to revive the economy.

Consumer fears

The main problem for the Japanese economy is that despite its export success, consumers at home are reluctant to spend money.

Domestic growth, which accounts for two-thirds of the economy, only increased by 1% for the quarter. Consumers are saving rather than spending because of record unemployment and the lack of a well-developed system of unemployment benefits.

International Trade and Industry Minister Takashi Fukaya warned that "consumer spending is weak and employment conditions remain severe, so we should stay alert on the economy."

The figures were boosted by corporate investment, which grew by 4.2% in the quarter compared to 3.5% in the previous perid.

It was a controversy over the size of capital investment by the financial services sector that led to a row over the accuracy of Japanese data last month.

Markets disappointed

International markets have become increasingly sceptical about the reliability of Japanese economic data, which has been criticised in the past as too optimistic by leading bodies like the Organisation for Economic Cooperation and Development.

The figures caused the yen to drop against the dollar, and the Tokyo Stock Market to fall.

The yen fell to 106.12 against the dollar, from 105.74 on Thursday.

"Although the market had expected weak economic growth in the fiscal year, investors sold off the yen immediately after the release of the GDP figures on disappointment that the economy failed to achieve the official target," said Mitsuru Sahara of Sanwa Bank.

The Nikkei index of leading shares also ended sharply lower at 16,861, down 142 points.