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Tue, Oct 17, 2000 EDT
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Japanese Officials Optimistic
Despite Renewed Recession

By Joseph Coleman   Associated Press
TOKYO — Japanese officials remained optimistic about the future of Japan's economy Monday, despite economic results from last year showing the country mired in a new recession.

The government revealed Monday that gross domestic product, the total value of goods and services, fell 1.4 percent in the October-December quarter due in part to a 1.6 percent drop in private consumption.

It was the second consecutive quarter of GDP decline, meaning the economy was officially back in recession after last year's anemic growth fueled by a massive government spending binge. GDP shrank 1 percent in the July-September quarter.

However, the grim numbers were not considered a sign that Japan's economy was headed further downhill, and government officials were quick to point out hopeful indicators, such as machine orders and capital expenditure.

"Everyone knows consumption in the January-March period will be good," Finance Minister Kiichi Miyazawa said. "The fact is, the economy is clearly improving."

Nevertheless, Monday's numbers were a disappointment.

The GDP decline was much steeper than the 0.9 percent drop market analysts had predicted. If the economy continued to perform the same for a year, it would shrink a dramatic 5.5 percent.

The October-December plunge was the third-largest on record, beat only by the contractions that followed the 1974 oil shock and the 1997 imposition of a higher consumption tax, the state Economic Planning Agency said.

At the root of the decline was the usual culprit: The pessimistic — or practical — consumer.

With increasing reports of layoffs and cut backs as corporations restructure to face growing global competition, Japanese have resisted myriad incentives to spend, including rock-bottom interest rates and government-issued coupons.

Ron Bevacqua, senior economist for Commerz Securities Co. in Japan, said that while Japan was "firmly on a recovery trend," Monday's announcement showed its economic problems were not over.

"I think that this kind of a report will deflate any kind of economic overoptimism, which is the kind that we've been seeing," he said.

The immediate impact of the GDP announcement on markets was limited, since most players expected some sort of decline. Japan's benchmark Nikkei stock average lost 560.47 points, or 2.8 percent, to close Monday at 19,189.93.

The EPA said the Japanese economy now needs to grow 2 percent in the January-March period for the country to achieve its target of 0.6 percent growth in the fiscal year ending March 31.

EPA chief Taichi Sakaiya said last week that growth in industrial output and machinery orders since January would probably help GDP grow 1 percent in the fiscal year ending in March 2001.

He predicted the economy would grow 2 percent in the fiscal year ending in March 2002, after consumer spending kicked in.

"We are seeing signs of recovery in the Japanese economy faster than expected," Sakaiya said Monday evening.

Rising industrial production, increasing wages and growing capital expenditures were fueling a turnaround in the January-March period, he said.

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