October 31, 2001	Wednesday	Shaba’an 13, 1422

TOKYO, Oct 30: Japan’s government shares a bleak forecast given earlier by the central bank that the world’s number two economy will wallow in recession for the next two years, a key minister said on Tuesday.

The forecasts by the BoJ (Bank of Japan) are similar to private institutions, State Minister for Economic and Fiscal Policy Heizo Takenaka told a news conference.

I think the forecast by the Cabinet Office will not be much different from the BoJ’s, Takenaka said, adding that he aimed to release the Cabinet Office revised prediction later this week.

I expect the US economic recovery will be delayed to the second half of next year, from the second half of this year, after the September 11 attacks (in the United States), he said. If this happens, Japan’s GDP (gross domestic product) may be negative next fiscal year.

The remarks came a day after the central bank warned the Japanese economy would shrink by as much as 1.2 percent in the year to March, contrasting sharply with an earlier prediction of a minimal 0.3 per cent growth.

Contraction would continue into 2003, the bank said, forecasting as much as a 1.1 per cent decline.

The government’s official forecast currently stands at 1.7 per cent expansion, an impossible target economists say.

Takenaka warned Japan may fall into a deflationary spiral as prices continue to tumble and industrial output slumps.

Household spending is not falling so much, relative to industrial output. In other words, consumption is supporting the economy. But if household spending starts to show a further decline, I think it means that the economy has fallen into a deflationary spiral, he said.

Government figures released earlier Tuesday showed Japan’s jobless rate hit a record high of 5.3 per cent in September and spending by salary earning households continued to slide 1.3 per cent after falling 0.8 per cent in August, marking the sixth straight year-on-year drop.

Separate data out Monday showed industrial output slumped 2.9 per cent in September from a month earlier, further proving Japan had as good as slipped into its fourth recession in a decade, economists said.

Takenaka said the government should pay more attention to the unemployment numbers, but he denied any plan for an emergency package at present.

An expected rise in unemployment was part of the decision to launch an extra budget. Therefore, I see no need to launch an emergency package, he said.

The government is preparing to pass a three-trillion-yen supplementary budget for the year to March to boost the nation’s flagging fundamentals, focusing on the unemployment rate and massive bad loans at banks.

This year’s pump-priming package, much lower than previous stimulus measures in line with a pledge by the government to cap expenditure, is due to be formally approved by Prime Minister Junichiro Koizumi’s cabinet on November 9, and submitted to parliament.

Japan’s economy shrank 0.8 per cent over April-June and all data indicate a further contraction occurred in the three months to September. Recession is technically defined as two consecutive quarters of decline.—AFP