Uncertain recovery forecast for Japan

28 Aug 12
Japan’s economy is recovering at a moderate pace but the slowdown in overseas economies caused by the eurozone crisis still represents a risk to growth, the country’s Cabinet Office said today.

By Nick Mann | 28 August 2012

Japan’s economy is recovering at a moderate pace but the slowdown in overseas economies caused by the eurozone crisis still represents a risk to growth, the country’s Cabinet Office said today.

Demand associated with reconstruction after last year’s Great East Japan Earthquake is expected to drive Japan’s economic recovery in the short-term, despite the decelerating overseas economy, according to the department’s latest Monthly economic report.

However, there had been ‘weak movements’ recently. Industrial production had slowed and exports were ‘in a weak tone’. Even though Japan’s employment figures showed signs of improvement, there were ‘severe aspects’ to the jobs market.

Warning of the impact of external factors, the report said: ‘Further slowing down of overseas economies and sharp fluctuations in the financial and capital markets – under a high degree of uncertainty about the prospects of the eurozone debt crisis – are downside risks of the Japanese economy.

‘It should also be noted that there is still a risk of constraints of electric power supply and the adverse effects of deflation on the economy.’

The Cabinet Office said that Japan’s government would work ‘decisively’ with the Bank of Japan to tackle the biggest short-term challenge to the country’s economy – stopping deflation.

It would also make its ‘best effort’ to promote reconstruction from last year’s earthquake and to avoid economic slowdown, as well trying to prevent the economy from falling into a ‘vicious cycle’ where the Japanese yen appreciates in value and price deflation continues.

At the same time, it was ‘essential’ to reform the country’s economic structures, which lend themselves towards deflation, and to undertake ‘appropriate’ macroeconomic policy management.

In particular, the Cabinet Office highlighted the guidelines for Japan’s 2012/13 budget ,which were approved earlier this month with the aim of reining in the country’s public debt and encouraging economic growth. Japan’s public debt currently stands at 125% of its gross domestic product, and it is under pressure from the International Monetary Fund to reduce it.

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