90
Years of Trusted Insights
Japanese
Economy Recovering Slowly, But Not Strongly Enough to Counter Emerging
Global Weakness, Says Economic Analysis from The Conference Board
July 19, 2006…While Japan’s structural economic performance has
improved, the rate of its economic progress is still modest, according
to an analysis released today by The Conference Board, the
global research and business membership organization.
“Although Japan benefited enormously from the ‘shot in the
arm’ provided by the surge in industrial equipment exports to China in
the 2002-2004 period, this external stimulus has largely dissipated,”
says Gail D. Fosler, Executive Vice
President and Chief Economist of The Conference Board. This analysis
appears in StraightTalk, a newsletter designed exclusively for members of
The Conference Board global business network. “Domestically, employment
and wages in Japan have risen for the first time in 10 years and, on its
own terms, the economy is much healthier. But in comparison to other
industrialized countries, its market growth is still weak.
Almost one-third of the eye-catching growth rate Japan recorded
last year was due to unusual factors that will not be repeated.”
For most of the last two decades, the U.S. business cycle has
governed global economics, including Japan’s economy, which has tracked
closely with the U.S. since the mid-1990s. After the Japanese “bubble”
burst as the 1990s began, Japan entered a protracted recession and missed
most of the U.S. recovery period. Just as Japan and the U.S. were
beginning to recover from Federal Reserve Board tightening in the
mid-1990s, Japan was hit by the Asian financial crisis of 1997-1998. Japan
also suffered from the U.S. technology collapse and the 2001 recession.
Since 2002, Japan
has enjoyed its longest period of positive growth in the past 15 years.
But its economy still follows the ebbs and flows of the U.S. economy and
is currently suffering as the American economy struggles.
JAPAN
MORE EXPOSED TO THE CHINA MARKET
Japan’s auto
sector now accounts for one-third of U.S. auto market sales. But Japan
still depends on exports and, since 2001, has been much more exposed to
the Chinese market. Japanese exports to China, which were very small
before 2000, make up almost 15% of total Japanese exports, while the U.S.
share has declined by nearly the same amount.
Japan’s
export base increased at a 20% annual rate between 2002 and 2004, with
almost a quarter of this growth coming from China. During this period,
Chinese imports were growing at about a 50% annual rate, while Japan’s
exports to China were rising at almost a 60% annual rate.
“China’s explosion onto the world economic stage was a huge
boon for Japan, which not only benefited in terms of export stimulus, but
from a direct source of domestic stimulus to an economy that had struggled
to find the momentum to lift itself out of its long-term recession,”
says Fosler.
But Fosler says much of the optimism about Japanese economic growth
may be a delayed reaction to the better than expected performance of
2004-2005 rather than a hard-nosed appraisal of the future. Recently,
Japan’s machinery export orders and industrial activity have been flat,
and its profit growth is slowing rapidly and its productivity growth is
stagnating. And China’s exports, which have been important to all of
Asia, are now rising at only about a 15% annual rate.
A
BRIGHTER JOB PICTURE
Some of the improvement
in Japan’s consumer sector can be traced to a brighter employment and
wage picture. Like Germany, Japan suffered a sharp drop in employment in
the late 1990s. By 2002, total employment was almost 3 million lower than
it was in 1997. Wages and salary income suffered equally striking declines
during this period. Since 2003, both wages and employment in Japan have
risen. Employment is now up about 0.7 million jobs and the unemployment
rate is down to about 4%.
“Still, there is far
too little evidence to support the notion that Japan has entered a period
of sustained economic growth, and the recent pullback in Japanese stock
prices actually provides evidence to the contrary,” concludes Fosler.
ABOUT THE
CONFERENCE BOARD
Not-for-profit
and non-partisan, The Conference Board is one of the world’s leading
research and business membership organizations. It produces the
widely-watched Consumer Confidence Index, Help-Wanted Advertising Index,
and Leading Economic Indicators for the U.S. and eight other major
nations. The Conference Board is also noted for its economic forecasts and
CEO surveys, and for its studies on global productivity, corporate
governance, business ethics, corporate citizenship, workplace diversity
and mature workers. Its conference and council programs attract more than
18,000 senior executives each year. www.conference-board.org.
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Source: StraightTalk, Volume 17, #5, The Conference Board
