Financial Sector

July 2004

The Cabinet Office on July 21 revised the economic forecast for fiscal 2004 for a 3.5% real-term economic year-on-year expansion during the year, up from the 1.8% growth predicted in January. It also calls for a 1.8% nominal expansion, compared with the 0.5% growth forecast in January. The Cabinet Office made the revision in an effort to reflect recent macro-economic trends in the government compilation of its fiscal 2005 budget. The major change the office noted in revising the economic growth forecast was personal consumption, which accounts for half of gross domestic product. The office now believes personal consumption will grow 2.6% in real terms in fiscal 2004 from a year ago, compared with the 1.1% expansion it predicted in January. It now believes employment situations are improving and personal income is bottoming out, a development expected to keep overall personal consumption on an expansionary track for some time to come. Meanwhile, in a survey conducted by the Economic Planning Association, a body affiliated with the Cabinet Office, influential domestic economists forecast an average 3.5% real economic growth for fiscal 2004, the same as the Cabinet Office's revised forecast. As for nominal growth, they predict an average 1.6% expansion for the year. The 3.5% economic growth, if really attained, will be the biggest expansion since fiscal 1996, when the economy achieved a real year-on-year growth rate of 3.6%. But because the growth rate for the April-June period was robust, the domestic economy will chalk up a 2.1% annual expansion in fiscal 2004 even if it attains no quarter-to-quarter growth in the following two quarters. This means the Cabinet Office is expecting a mild growth rate of around 1.5% in the remaining quarters of the current fiscal years. Along with the forecast for the current fiscal year, the Cabinet Office revealed, for the first time, its economic growth prediction for fiscal 2005, calling for a real-term expansion rate of just over 2% and a nominal growth rate of around 1.5%. (The Nikkei Weekly, July 26, 2004)

The Finance Ministry on Wednesday kept its upbeat assessment of the economy for the May-July period, bolstered by strong sales of air conditioners and beverages amid the hot summer. The economy is following a gradual recovery path, even though the pace differs between regions, the ministry said in a quarterly report. Compared with the preceding three months, production is gradually increasing, personal consumption remains flat and employment is gradually improving, the report says. "The economy was firm due to brisk sales of digital home appliances, along with growing sales of air conditioners and beverages at convenience stores, spurred by the hot summer," a ministry official said. "The employment situation also shows improvement as the economic recovery has broadened." The ministry upgraded its economic assessment for three straight quarters through the February-April period, saying the recovery is gradually spreading from major cities to rural areas. Of the ministry's 11 regional bureaus, 10 reported growth, while Hokkaido said a deterioration in the economy is ending, according to the latest report. Of the 10, the regions of Hokuriku, Tokai and Chugoku, and Kyushu and Okinawa revised upward assessments of their economies. Car production remains high in the Tokai region, and manufacturing of electronic parts and devices for mobile phones and digital home appliances is firm in the Tohoku region, the report says. (The Japan Times, July 29, 2004)