Hiroko Ota: Japan will estend weaker performance

Headline - Economy

Written by Faisal Justin

Jakarta, Financeroll.com - Japan’s former Economic and Fiscal Policy Minister Hiroko Ota said the world’s second-largest economy is likely to stumble again later this year after a temporary rebound. “Japan’s recovery may be W-shaped,” Ota, said in an interview in Tokyo on June 4. “The worst is over but I can’t say the economy is heading for a recovery at all.” Bank of Japan Governor Masaaki Shirakawa said last month that the economy will resume growing this quarter after the previous period’s record 15.2 percent annualized plunge. That expansion won’t guarantee a sustainable recovery as businesses facing declining profits reduce costs, Ota said. “A sharp deterioration in profits may force companies to cut business spending and jobs further, triggering a second trough,” said Ota. “The economy could fall as early as the second half of this year.” Japanese companies slashed spending at the fastest pace in 54 years last quarter and profits tumbled a record 69 percent, the Finance Ministry said last week. The unemployment rate rose to 5 percent in April, the highest in more than five years, and about two work seekers are competing for a single spot, the most severe job shortage on record. Even so, improvements in industrial production and exports since last quarter have spurred speculation that Japan may soon recover from its deepest postwar recession. Prime Minister Taro Aso has pledged to spend 25 trillion yen ($253 billion) reviving the economy, swelling a public debt burden that’s already the largest in the industrialized world. “Support from the economic stimulus is likely to be only temporary,” Ota said, citing the measures as another reason why gross domestic product may shrink again this year. “It seems we’re regressing back to the 1990s,” when the government spent money on wasteful public works projects and protected inefficient industries, Ota said. The recovery will be “very weak” even once it begins, probably next year, Ota said. Exports won’t be as strong as they were during the expansion that ended in October 2007, and consumer spending is likely to be sluggish, she said. “Japan’s economy was weak even before this recession,” with issues such as low productivity in the service industry, which employs 70 percent of the workforce, Ota said. “It’s becoming an obsolete phrase but I would dare to keep saying ‘there is no growth without reform.’ Japan can’t survive without it.” (bloomberg)