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Japan slips into recession as Q4 GDP dips

TOKYO: Japan slipped back into a technical recession in the last quarter of 1999 but economists said underlying the contraction were unmistakeable signs that spending by companies should ensure a recovery this year.

Gross domestic product - the measure of all goods and services produced in the economy - fell a larger than expected 1.4 percent in October-December quarter, or down an annualised 5.5 percent, the Economic Planning Agency (EPA) said on Monday.

The drop confirmed the difficulties in the struggle by the world's second-biggest economy to escape its worst downturn in half a century. Japan spend most of 1998 in recession.

Economists said the figures appeared to show that the worst may be over, while government officials were quick to emphasise bright signs emerging in the economy since January.

"Overall, it's fair to say the Japanese economy is recovering," said Jesper Koll, chief economist at Merrill Lynch Japan.

Markets brushed aside the relapse into recession, driving the yen higher against the dollar and pulling down bond prices as traders latched onto optimistic growth forecasts for the first quarter of 2000.

"We've got some very good indications here that business investment is coming through," Koll said, citing a healthy 4.6 percent rise in capital expenditure in quarter to December.

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EPA chief Taichi Sakaiya described the figures as within his expectations and said the possibility was high that Japan would meet its official 0.6 percent growth target for the fiscal year to March 31. It will need growth of about 2.0 percent in January-March to ensure that.

Other senior finance officials joined in with praise for an economy that has turned out mostly positive economic signs since January, particular in the long-suffering private sector.

"I think the January-March figures will be good," Finance Minister Kiichi Miyazawa told reporters. "The fact that capital spending was positive was very encouraging."

Top finance bureaucrat Nobuaki Usui said data for the first quarter of 2000 show signs of an improvement and he was not worried about the economy's performance for the year to March.

In the previous quarter, GDP fell 1.0 percent. Two straight quarters of decline meet the conventional definition of a recession, but government officials have been stressing in recent weeks that signs of a turnaround remain intact.

However, weak personal consumption, hampered by a sharp drop in winter bonus payments, job insecurity and concerns over Y2K-related disruptions, was a key factor cutting into the economy in the December quarter, the economists said.

Personal consumption accounts for some 60 percent of GDP.

"Households could not spend more in light of the lack of wage increases and limited job openings. This recovery pattern will likely persist for at least several years to come," said Yasushi Okada, chief economist at CS First Boston Securities, sounding a note of caution.

Although the GDP was worse than forecasts for a one percent drop, a recession had been expected.

However, many economists cite the unreliability of the figures, which ignore many changes in Japan's economy - for example, most IT spending is exluded.

Speaking after the figures were released, Sakaiya seized on the 4.6 percent rise in corporate capital spending for the quarter, saying it was above his expectations.

Capital spending accounts for around 16 percent of GDP, and the rise in business spending last year reinforces hopes in the government for a private demand-led recovery later this year emerging before general elections to be held by October.-Reuters