nuclear disasters

Japan’s Economy on Road to Recovery, Central Bank Says

TOKYO — Three months into Japan’s bid to reinflate its economy after years of falling prices, the country’s central bank said Thursday that economic conditions were starting to recover, signaling its confidence that the world’s third-largest economy was on the cusp of a long-awaited turnaround.

It was the first time since January 2011, before Japan’s natural and nuclear disasters in March that year, that the Bank of Japan had ventured to use the phrase “recover.” The bank’s message is underpinned by a rebound in Japan’s mainstay exports, helped by a weaker yen, as well as some signs of a broader recovery in consumer spending.

Reflecting its optimism, the central bank’s policy-setting board left monetary policy unchanged and stuck to its goal of hitting 2 percent inflation in two years. To get funds flowing again in the Japanese economy, the bank, led by Governor Haruhiko Kuroda, has pledged to pump 60 trillion to 70 trillion yen, or about $600 billion to $700 billion, into the economy annually.

“Japan’s economy is starting to recover moderately,” the bank said in a statement released at the end of its two-day meeting. For proof, it pointed to a pickup in corporate investment and profits, industrial production, and both business and consumer sentiment.

After years of disappointing growth, Japan’s economy is showing signs of a comeback, thanks to what economists have called the bold economic policies of Prime Minister Shinzo Abe: an aggressive monetary policy, heavy government spending and a set of pro-growth reforms.

Japan is now growing faster than any of the Group of 7 leading economies, logging an annualized G.D.P. growth of 4.1 percent in the first three months of the year. This week, the International Monetary Fund raised its growth outlook for Japan to 2 percent for 2013, putting it well ahead of its G-7 peers. The Tokyo stock market has gained 40 percent this year.

Economists, along with Mr. Abe, have taken to calling his economic program “Abenomics.” The term has featured prominently in campaigning for the July 21 elections for Japan’s upper house of Parliament, which Mr. Abe’s ruling Liberal Democratic Party is favored to win by a landslide.

Still, the central bank acknowledged that it could take time for an all-around recovery in prices to take hold after 15 years of deflation, scaling back its shorter-term inflation outlook. The year-on-year rate of change in consumer prices, excluding fresh food, is still zero, it said, though some indicators suggested a rise in inflation expectations.

Meanwhile, jitters over volatility in government bond markets have also receded in recent weeks, after the bank adjusted the way it conducts its purchases in that market, minimizing any disruption. Despite Japan’s sky-high public debt, long-term interest rates remain far lower than those in the United States or in Europe.

Even as the Fed debates when to phase out its stimulus, the focus in Japan has turned to when the central bank might push ahead with more easing. But the bank’s willingness to stand pat on monetary policy, and on its 2 percent inflation target, nevertheless suggests that the bank is comfortable with letting its program play out in the wider economy for now, economists said.

In a note to clients, Kyohei Morita, a Japan economist at Barclays, said he was pushing back his projection for further easing from the central bank to next April, from an earlier forecast of October this year. A slowdown in government spending as post-disaster reconstruction demand winds down could hurt growth projections for 2014 and force the bank’s hand, he said.

He was optimistic that growth, for now, would receive wide support from strong consumer spending, buttressed not only by improving sentiment but on the impending mass retirement of the country’s postwar baby boomers, who are expected to turn en masse from net savers to net spenders.

“Japan’s economy is increasingly characterized by strong personal consumption, supported by Abenomics and the baby-boomer generation,” Mr. Morita said.

Article source: http://www.nytimes.com/2013/07/12/business/global/japans-economy-on-road-to-recovery-central-bank-says.html?partner=rss&emc=rss

Japan Ponders Its New Normal

Their boats washed away by the tsunami, fishermen in the town of Higashi-Matsushima say they will start over, but on a smaller scale.

And with electricity still in tight supply from the Fukushima Daiichi nuclear crisis, a landmark building in Tokyo has dimmed its famous lights.

Across Japan, there is a shared realization that the natural and nuclear disasters unleashed on March 11 have exposed the fragility of Japan’s postwar economic order — and that a recovery will not be a return to the status quo.

The disasters have dealt another blow to a manufacturing sector already battered by cheaper rivals, deepening fears of a “hollowing out” of Japanese industry long feared in this country. Japan’s aging, shrinking population will also make an energetic bounce-back more difficult. And Japan’s economy relies heavily on precarious nuclear energy, for which alternatives are likely to be more expensive.

Rebuilding will require a national rethinking if Japan is to achieve an economic rebirth, rather than sink further into the stagnation that has plagued it for two decades, many experts say. And reconstruction will define the nation’s place in a global order where Japan is no longer the rising economic star of a generation ago.

“We cannot have recovery for recovery’s sake,” said Hiroko Ota, a former economy minister and vice president at the National Graduate Institute for Policy Studies. “We must make this the starting point for a new economy.”

Japan is no stranger to disasters and rebuilding. Its economy largely shook off the effects of a disastrous quake that struck the city of Kobe in 1995, thanks to an all-out recovery effort.

But even compared with the Kobe crisis, Japan is a weaker nation that now faces the task of reconstruction.

The average age for the population has advanced since then by about six years — to 44.6 years in 2009, which weighs on economic growth and means mounting medical and pension payouts. And the Japanese government is saddled with a public debt more than twice the size of its economy, limiting its spending options.

“In many ways, this is an unprecedented disaster,” said Takayoshi Igarashi, a professor in politics at Hosei University in Tokyo and a member of a council the government has asked to draft a long-term reconstruction plan. “Japan is at a crossroads.”

So, it seems, is Japanese manufacturing.

Take Meiko Electronics, which supplies circuit boards to some of the world’s biggest makers of smartphones. Soon after the quake and tsunami ravaged Meiko’s circuit board factory here in Ishinomaki, mangling machines and sweeping a mountain of debris onto the factory floor, officials at the company knew its days of manufacturing in its home country were limited. A second Meiko factory was also damaged.

Meiko already makes 80 percent of its parts overseas. With the damage to two of its five Japanese factories — and the uncertainties of Japan’s power supply — it does not make sense to rebuild in the country, said Hidetaka Maruyama, a company spokesman.

“Without a doubt, there will be a shift toward production overseas,” he said. A new factory in Wuhan, China, completed in April, has already started producing many of the most sophisticated Meiko circuit boards once made in Japan.

To be sure, government surveys show that many manufacturers have rebounded quickly in the quake’s aftermath. But analysts warn that even a short hiatus in Japanese output, and electricity disruptions, are enough to give overseas competitors an opportunity. And the disaster has shown that even some of the country’s biggest multinationals remain dangerously dependent on domestic suppliers, a realization that could spur more corporations to move production offshore.

Article source: http://feeds.nytimes.com/click.phdo?i=c5b4281b7bb072b8fb718e2943b38f30

Japan’s Economy on Road to Recovery, Central Bank Says

Japan Ponders Its New Normal

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