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Thursday, January 21, 1999 Published at 09:06 GMT

Business: The Economy

A bright spot on Japan's horizon?

No let up in the pressure on Japanese jobs and wages

Japan's economic deterioration appears to be "moderating gradually", according to the country's central bank.

The Bank of Japan said any improvement was due to a rise in public sector investment. However, in its latest monthly report, it said private sector demand had yet to show signs of recovery.

Private sector capital spending is still falling sharply and housing investment, in particular, remains sluggish. Consumer spending is also weak.

The bank said the decline in industrial output had slowed somewhat, but corporate earnings had continued to deteriorate, putting more pressure on jobs and wages.

"As a result, corporate and consumer sentiment remains cautious, and a recovery in private sector demand has not yet been seen," it said.

The bank expects rises in public sector demand to continue to support the economy towards the end of the first half of the year to March 2000, but it does not expect the situation to develop into a period of sustained recovery. It expects profits and wages to continue to deteriorate.

The government has put in place a large economic stimulus package, involving tax cuts and spending on public works, to try and reverse Japan's worse postwar recession.

Monitoring the yen

The international economic environment has also been unfavourable to Japan, with the yen strengthening against the dollar by nearly 25% since the autumn, making Japan's exports less competitive.

The bank said the yen's appreciation and growing uncertainty about emerging economies, as well as financial markets in those countries, need to be monitored carefully.

"Restoring a stable financial system is important to lead the Japanese economy to steady growth," the bank said.

Although financial conditions in the private sector have improved slightly thanks to measures implemented by the government and the Bank of Japan, companies are still very cautious about raising funds towards the end of March, as banks maintain a strict lending stance towards new advances, it said.

The Bank of Japan said the rise in yields of long-term government bonds since mid-December reflected market concerns about the deterioration of supply and demand conditions.

It said the fall in share prices since then was largely due to the yen's strength and the rises in bond yields.

Although these movements have been reversed recently, it said any further developments on this front and their impact on the economy needed to be watched carefully.

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