A FLAT, AND NO SPARE:

Deflation hobbles Japan (Matthew Rusling, 5/25/05, Asia Times)

Despite a surprise increase of 1.3% in this year's first-quarter GDP, Japan is not quite headed for an economic rebound. One big problem, say experts, is still that ghost of Japan's economic past, present and perhaps future: deflation. In its latest Outlook for Economic Activity and Prices, the Bank of Japan is forecasting a 0.1% decline in consumer prices in fiscal year 2005 from FY2004. Although the same report estimates a price increase for FY2006 of 0.3%, experts have called this miniscule.

Deflation has been a significant contributor to Japan's economic woes in recent years, and appears to be still a problem, say experts. In the late 1990s, many Japanese companies and households suffered from excessive debt. Prices declined, which had a negative effect on the country's business climate and began a series of deflationary slumps that continues today. Many use a common euphemism to describe the economy's lack of spunk, saying it is still stuck on a "stairway landing". A report by the Cabinet Office in Tokyo last week revealed that the world's second-largest economy grew at an annualized 5.3% pace in the three months ended March 31. But experts fret that despite the surprisingly positive numbers, the economy has yet to make a real comeback.

"People are struggling to make profits," says Noriko Hama, an economist at Doshisha University School of Management. She says jobs can be affected when deflation plays a significant role in an economy. "Companies will be careful about expanding their labor force."

Expand their labor force? There are no laborers to draw from.

Posted by Orrin Judd at May 24, 2005 12:00 AM