“Amid the slowdown of the global economy, the Japanese economy remains at a severe stage with deteriorating employment, while exports, production and capital investments fall,” Finance Minister Shiokawa told parliament.
The impact on trade of the fallout from the September 11 terrorist attacks on the United States also clouded Japan’s growth potential.
“The outlook is increasingly uncertain with the multiple terror attacks in the United States,” Shiokawa said in a speech to rally support for a cabinet-approved supplementary budget bill for the year to March.
Tokyo formally approved the slim 2,995.5 billion-yen (25 billion-dollar) stimulus package to offer financial support as the country sinks into its fourth recession in a decade.
“(Japan’s economy) is at a very severe stage, with the unemployment rate reaching a record high of 5.3 per cent (in September),” Prime Minister Junichiro Koizumi said, also in parliament.
Koizumi has pledged to revive Japan through a tough reform drive that includes cleaning up a mountain of bad loans held by Japanese banks and reining in national debt which has exploded to 130 per cent of GDP through repeated extra budgets spent on public works projects.
The stimulus pack for this year is much smaller than previous extra spending in line with a reform promise by Koizumi to cap new government bond issues this year and next at 30 trillion yen, but some ministers and lawmakers have indicated three trillion yen is not enough with the economy so weak.
The revised 0.9-per cent drop in gross domestic product (GDP) will mark the worst result since 1980 under the current formula used to calculate growth or contraction.
Japan’s weakest performance to date was a 0.6-per cent fall in the year to March 1999 when the country was caught in the grip of a banking crisis with a mountain of bad loans that have continued to grow.
The government also acknowledged prices in Japan remained in a deflationary tailspin, slashing its GDP forecast to March in nominal terms, which reflects inflation or deflation, to a 2.3-per cent drop from 1.0 per cent growth previously.
If realised, 2001 will be the fourth consecutive year of economic contraction in nominal terms, highlighting Japan’s prolonged deflation and further pressuring the prime minister to speed up his reform efforts first announced when he took office in April.
Japan’s economy shrank 0.8 per cent over April-June this year and data indicates a further contraction occurred in the three months to September, meaning a technical recession. Japan’s July-September GDP will be released on December 7.
State Minister for Economy and Fiscal Policy Heizo Takenaka warned the economy may continue shrinking next year, depending on how the US performs.—AFP