Thursday, September 9, 1999

Japan’s economy on the mend

The latest numbers point to a recovery

Bloomberg News


TOKYO -- Japan's economy expanded for the second straight quarter in April-June, as resurgent consumer spending helped snap the country's longest ever recession.

Gross domestic product expanded 0.2 percent in the three months ended June 30, following 2 percent growth in the first quarter. The yen soared and stocks rose on the news of the first back-to-back economic expansions in more than two years. Analysts had expected a 0.3 percent contraction for the period.

"The results show a clearer picture of an economy that is picking up," said Yuzo Seto, chairman of Asahi Breweries Ltd., Japan's second-largest brewer.

The maker of Asahi Dry, Japan's most popular beer, is set to open a new brewery in 2002 that can produce 40 percent more beer than its Tokyo plant, which will be closed.

The return to growth will cheer overseas investors, who have staked $50 billion buying Japanese stocks this year on the premise that the world's second-biggest economy is recovering. For the government, it means the next round of economic pump-priming measures may not be as costly as expected.

The benchmark Nikkei 225 stock index rose 36.18 points, or 0.2 percent, to 17.783.62, led by retailers and chemicals companies.

The yen strengthened 108 to the dollar, up from 111 yen yesterday, as investors bought yen-denominated assets.

"The rise in GDP came largely from the private sector which is a good sign," said Marshall Gittler, currency strategist at Bank of America Corp. in Hong Kong. The report is "definitely yen positive," he said.

U.S. Treasury Secretary Lawrence H. Summers, while refusing to comment on the specifics of the report, told reporters, "Certainly there are now a number of indicators suggesting that there has been improvement in the Japanese economic and financial situation."

"But there are always fluctuations in economies and what's going to be crucial is whether economic growth is domestic-demand led and becomes self sustaining," he said.

He didn't talk about the value of the dollar or the yen.

Japanese shoppers helped lead the economy into its second quarter of growth. Consumer spending, which accounts for three-fifths of GDP, rose 0.8 percent in the quarter, the second straight increase after a year of decline.

Spending on housing soared a record 16.1 percent, helped by the low mortgage rates offered by the Housing Loan Corp.

Home buyers flocked to the government lender to get cheap loans after it cut its benchmark home loan rate to 2 percent in October. The rate has now risen to 2.6 percent. The corporation also provided tax breaks to borrowers and eased qualification standards.

IBM, the world's biggest computer maker, is benefiting from rising consumer spending. PC shipments will rise 26 percent this year from last, according to research company IDC Japan Ltd.

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