Japanese Economy Is Showing Fresh Signs of Weakness --- Some Fear New Recession, Which Would Hinder Koizumi Reform Plans
TOKYO -- Japan's economy is showing new signs of weakness, which could make it trickier for Prime Minister Junichiro Koizumi to carry out his promises of corporate restructuring and economic reform.</br></br>The government is scheduled Monday to report gross domestic product for the first quarter, and most economists expect a flat figure compared with the previous quarter. But a variety of data suggest that the U.S. slowdown is taking its toll on Japan, and that GDP could shrink in the current and third quarters, throwing Japan back into a full-fledged recession.</br></br>Among the negative signs: The index of leading economic indicators has been below 50% for three months in a row, often a harbinger of recession. Industrial production fell 1.7% in April from March. Yesterday, a Ministry of Finance survey of corporate investment suggested slower-than-expected GDP growth in the first quarter. Meanwhile, corporate profits were flat in the latest quarter, after growth of 31.9% in the preceding quarter.</br></br>"It is only a question of timing . . . and not direction -- the economy is heading into recession," wrote Richard Jerram, economist at ING Barings in Tokyo, in a report to clients.</br></br>Mr. Koizumi says further structural reform, such as clearing up bad loans at banks and eliminating wasteful government spending, will help the economy grow over the medium term. In the short term, however, economists agree that reform will likely damage the economy by increasing unemployment and bankruptcies. Should the economy slow sharply over the next few months, Mr. Koizumi would face increasing pressure to scale back his reform plans, among them his promise to restrain government debt.