Key index casts doubt on Japan recovery


Japan's trade surplus jumped sharply last month on increased demand for its exports of cars and consumer electronics

staff and wires

TOKYO, Japan -- A key measure of Japanese economic activity fell in April, with the well-watched all-industries index dropping.

That reinforced views that the recovery in the world's second largest economy in the first quarter of 2002 may not be sustainable.

"I see a danger of prolonged economic weakness," Economy and Trade Minister Takeo Hiranuma told reporters on Friday.

His comments came after his ministry said its all-industries index showed a month-on-month fall of 1.3 percent in April. The index is a closely watched barometer of economic activity.

The stock market is off sharply near midday Wednesday, with the benchmark Nikkei 225 average down more than 2 percent to 10,390. Tech-related stocks such as chipmakers are down.

Japan posted its best economic growth in two years in the March quarter, with gross domestic product up 1.4 percent from the previous quarter. That equated to annualized growth of 5.7 percent.

Three quarters of contraction

Before that, the economy had shrunk three quarters in a row, putting Japan into recession.

The government of Prime Minister Junichiro Koizumi is still battling on numerous economic fronts, including deflation, slack consumer demand, high unemployment, bank bad loans and entrenched opposition to structural reform.

The all-industries index rose 1.2 percent in March. The tertiary-sector index, a core component of the index mainly measuring the services sector, fell 1.5 percent in April after rising 1.3 percent in March.

The overall figure was a bit lower than expected.

"The figure reflects weak domestic demand, which contrasts with the growth we're getting in industrial production," Takeshi Minami, senior economist at UFJ Tsubasa Securities, told Reuters news agency.

Figures released on Thursday showed Japan's reliance on an export-led recovery, particularly in terms of exports to the United States (full story).

Trade surplus up

The trade surplus for May jumped 715 percent from a year earlier, as overseas buyers snapped up Japanese cars, computer chips, flat screen TVs and other hi-tech products.

The trade surplus rose 27 percent year-on-year in April.

Economists say weak investment remains a drag on the economy. Many doubt growth can be sustained in the June quarter. They expect little if any growth in the April to June period.

Hiranuma appeared to back that viev.

"Conditions in our economy are still severe, with the corporate and employment environment still having downside risks," he said.

Offering some hope, the industrial-production component of the index rose 0.2 percent after rising 0.8 percent in March.

"We could see export-led growth in industrial production filtering through to the tertiary sector index going forward, but the degree is likely to be weak," Minami said.

Construction activity down

Activity in the construction sector fell 5.1 percent in April after a 1.5 percent fall in March, reflecting attempts by the government to scale back public-works projects.

"Overall, my impression is that there is no sector that is particularly strong," Kazuaki Hasegawa, director of the ministry's current statistics division, told a briefing.

"It's hard to say which sector might be able to pull the economy forward," he said.

In the tertiary area, real-estate activity showed an increase of 3.6 percent after a drop of 1.3 percent in March.

But the transport and communications component fell 4.2 percent, after a rise of 0.5 percent a month earlier.

Reuters contributed to this report.