``The Japanese economy has finally started to beathe freely,''
said an obviously relieved Takahisa Shioya, Vice Minister of
the Economic Planning Agency when announcing that gross
domestic product had surged 1.9 per cent in the three months
to March, representing 7.9 per cent a year.
The reaction of the markets expecting a rise of the order of
0.2 per to 0.25 per cent at best was jubilant and the Nikkei
average and the yen both took off in harmony.
The news was timely too for Finance Minister Kiichi Miyazawa about to set off for Frankfurt to attend a meeting of the Group of Seven (G7) industrialised countries where he would have
faced calls similar to that issued by US Treasury Secretary
Robert Rubin for Japan to pull its weight and help boost the
global economy.
``The Japanese have had enough of being beaten up at the
G7 and are delivering what they have been asked,'' said Nick
Parsons, currency strategist at Paribas Capital Market,
referring both to the growth rate and to the intervention by the Bank of Japan to rein in the rise of the yen. ``It looks as if they
can go to this G7 and take holiday snaps.''
The international focus will now be on sluggish European
economies and on whether the US is going to raise interest
rates. Wall Street slid by almost 1 per cent, pulling European
shares lower, on the growing fears that the Federal Reserve
would announce hikes at its next meeting at the end of June.
``Everybody believes that there is a Fed increase out there,
and the worry is that it will be a 50 basis-point increase rather
than 25,'' said Gary Dugan global strategist at J P Morgan.
The one share that did well was Renault, which gained almost 10 per cent on the hope that it would benefit from Japanese
growth through its shareholding in Nissan, the second biggest
carmaker in Japan.
But in Tokyo, economists surprised by the high growth figure, also injected more than a pinch of scepticism about how real
the rise in growth was. Even Taichi Sakaiya, head of the EPA admitted that: ``It's too soon to take this and say that the
Japanese economy has recovered. We must cautiously
monitor economic conditions.''
Mr Miyazawa, who described the growth figure as ``the light at the end of the tunnel'', said it would not affect the debate on
whether the government must compile a supplementary
budget to keep the engines firing and fulfil the government's
hopes of 0.5 per cent growth for the fiscal year.
One question is how much the 1.9 per cent figure was due to
massive government infusions of money for public works over the past year and interest rates of near zero.
Some people have questioned the reliability of the figures,
pointing out that economies do not shrink 3 per cent one
quarter, then grow at 8 per cent the next.
Koichi Ono of Daiwa Research Institute said that it would still be expecting a lot to see consumer spending growing when
unemployment was on the rise _ which is why the government will announce plans today to create 700,000 new jobs and retrain 100,000 older workers to combat the record 4.8 per
cent unemployment rate or 3.26 million unemployed.
Many leading companies have announced big corporate
restructurings that have cheered the stock market but
depressed consumer confidence. The financial system is still
fragile.
On top of this, government debt has risen and gross public
debt is more than 105 per cent of GDP, leading economist
Rudi Dornbusch to declare that: ``Japanese bonds deserve a
junk rating.''
But the rest of the world, and particularly Asia, will have their growth held back as long as Japan is sluggish.