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No. 46 — December 11, 1998

 

Feature Article

STATISTICAL PROFILE:
INTERNATIONAL TRANSACTION OF JAPAN IN 1996

-Table of Contents

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Weekly Review

JAPAN'S GDP SLUMPS FOR FOURTH STRAIGHT QUARTER by Douglas Ostrom

Japan's economy continues to struggle, with the latest broad measure of performance indicating greater weakness than expected. However, the economy's recent record was much better than first reported, suggesting that previous pessimistic conclusions about its underlying health need to be reevaluated. These multiple conclusions emerged from the Economic Planning Agency's December 5 release of third-quarter gross domestic product data and from extensive revisions of GDP figures released earlier.

The headline-grabbing number from this plethora of statistics was the 2.6 percent annualized, price-adjusted contraction in GDP in the July-September quarter (see Table). A Dow Jones/Nikkei survey conducted in early December yielded a consensus forecast of a 2.1 percent decline, suggesting that the results were a mild disappointment, especially since the drop was the fourth in a row. Never since the quarterly GDP data series began in 1955 had real GDP shrunk for more than two consecutive periods.

 

TOKYO SEEKS DIET APPROVAL OF NEW STIMULUS PROGRAM by Jon Choy

Prime Minister Keizo Obuchi and his cabinet recently submitted to the Diet a third supplemental budget for FY 1998 worth nearly ¥5.7 trillion ($42.2 billion at ¥135=$1.00). The December 4 bill, approved by the lower house December 8, provides the funding for the government's most recent, record-breaking ¥24 trillion ($177.8 billion) economic stimulus package (see JEI Report No. 44B, November 20, 1998). In his November 27 speech opening the special Diet session, Mr. Obuchi renewed his pledge to put the economy back on a growth track by FY 2000.

Thanks to the recent moves toward alliance by the ruling Liberal Democratic Party and the Liberal Party, insiders predict that the third supplementary budget will be ready for implementation by the December 14 end of the special session. Analysts welcome the extra money that will be pumped into the economy, but they point out that the prime minister, the LDP and the Liberal Party still have important spending and tax decisions ahead of them before Mr. Obuchi's pledge can be fulfilled.

 

JAPAN'S FISCAL DEFICIT PROJECTED TO SOAR by Arthur J. Alexander

Japan's fiscal system is setting new records, but they are not ones that Tokyo can refer to with pride. Ministry of Finance officials are projecting that the combined central and local government deficit will approach 10 percent of nominal gross domestic product in the current fiscal year, which ends March 31, 1999. That would be more than 2 percentage points higher than the old record of 7.2 percent, set in FY 1979 as the government tried to keep the economy expanding at a moderate rate.

The current financial predicament of the world's second-biggest economy has developed from three separate but related sources. As is usual in recessions, the downturn in Japan dating to April 1997 has required increased social welfare-related expenditures. In addition, revenues from personal and corporate income taxes have fallen in reaction to the slump's negative impact on personal incomes and business profits.

 

JIANG VISIT CREATES UNCERTAIN OUTLOOK FOR JAPAN-CHINA RELATIONS by Barbara Wanner

The much-anticipated November 23-28 Tokyo visit of Jiang Zemin, president of the People's Republic of China, seemed to raise more questions than it answered about the outlook for relations between the two Asian powers. On the plus side, Prime Minister Keizo Obuchi and Mr. Jiang agreed to expand bilateral cooperation in 32 areas, ranging from the economy to the environment. In general, though, the inability of the two leaders to lay to rest differences concerning Japan's often-brutal, pre-1945 conduct in China as well as Tokyo's unwillingness to kowtow to Beijing's demands concerning Taiwan cast a pall over a summit that many observers had hoped would inaugurate a new era of warmer bilateral ties.

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