Jan. 19 (Bloomberg) -- Japanese Prime Minister Junichiro Koizumi said the world's second-largest economy has recovered from recession, the first time he has made such an assessment since taking office in 2001. ``An improvement in company earnings, rising capital expenditures and other measures are showing that the Japanese economy has recovered,'' Koizumi told the opening session of the Diet, Japan's parliament.
A growing economy may help Koizumi's Liberal Democratic Party win seats in the July election to the upper house of Parliament and cement its hold on power. Sustaining a recovery won't be easy because the rising cost of caring for Japan's ageing population is curbing consumer spending, which makes up more than half the economy. ``It's difficult to believe that the recovery is sustainable, especially with major issues such as pension and health care reforms looming that are going to cost consumers more,'' said Shigenori Okazaki, a political analyst at UBS Securities Japan Ltd. Japan ``will be increasingly relying on the export market.''
A rising yen threatens to dent the recovery from a third recession in 12 years by crimping overseas sales of companies such as Canon Inc., which accounted for two-thirds of economic growth in the third quarter. Japan sold a record 20.1 trillion yen ($189 billion) last year, as it sought to slow the yen's 11 percent gain against the dollar. Koizumi's government is prepared to sell more yen to ensure the currency's stability against the dollar, Finance Minister Sadakazu Tanigaki told lawmakers in a separate speech.
`Close Watch'
``It's important that foreign exchange rates move in a stable manner, reflecting fundamentals of economies,'' Tanigaki said. ``We are committed to keeping a close watch on their moves and taking appropriate action as needed.'' The yen traded at 106.77 to the dollar at 4:48 p.m. in Tokyo, from 106.67 yen in New York late Friday. Koizumi's party needs six more seats to win a majority in the upper house. The prime minister led the LDP, which has ruled Japan alone or together with other parties for all but 10 months since 1955, to victory in the lower house in November.
More than five years of falling prices, a legacy of the 1980s asset-price bubble, have sapped Japan's economy by cutting corporate profits and inflating the value of debt. The Bank of Japan has kept interest rates at zero since March 2001 in an effort to end deflation. ``Through cooperation with the Bank of Japan we aim to beat deflation and stimulate the economy,'' Koizumi said. Koizumi said last week his government will need another year to end deflation, predicting prices in Japan will start to rise consistently in the year starting April 2005.
`Sustainable Recovery'
The government forecasts real growth, or economic activity adjusted for price changes, of 2 percent in the fiscal year starting Apri1 1. The Cabinet Office said last week that nominal economic growth will reach at least 2 percent as early as the fiscal year starting April 2006. The Japanese economy grew for six straight quarters through last September in real terms as exporters sold more digital cameras and other electronic goods abroad. Japan's benchmark Nikkei 225 Stock Average has rallied 45 percent from a 20-year low in April, shoring up company profits and boosting consumer confidence. ``Japan is now faced with a significant opportunity to put itself on track toward a self-sufficient and sustainable recovery,'' Economic and Fiscal Policy Minister Heizo Takenaka told the Diet.
Takenaka, who also serves as top banking regulator, said Japanese banks had made ``significant'' progress toward cleaning up bad loans. Bad loans declined 15 percent during the year ended March 31, the first annual drop in three years. Lenders had 44.5 trillion yen of bad loans during the period, compared with 52.4 trillion yen a year earlier, according to estimates by the Financial Services Agency. //www.bloomberg.com