An economic dark cloud ahead?

An Aug. 15 preliminary report by the Cabinet Office shows that Japan's gross domestic product (GDP) in real terms in the second quarter of 2011 dropped 0.3 percent or an annualized 1.3 percent from the previous quarter — for the third straight quarter of minus growth.

But the margin of the drop is much smaller than the previous drop of an annualized 3.5 percent.

Economic and fiscal policy minister Kaoru Yosano said that the minus growth is a temporary phenomenon due to the March 11 earthquake and tsunami, and that high growth can be expected in the last half of fiscal 2011.

Supply chains for parts and components devastated by the March 11 disasters are recovering quickly.

Although personal spending dipped 0.1 percent, a drop for three consecutive quarters, public works investment increased 3 percent, the first rise in six quarters, due to construction of fabricated houses in the disaster-hit areas.

The mining and industrial production index for June increased 3.8 percent from the previous month and the manufacturing industry operation rate index for the same month rose 5.2 percent from the previous month.

But the government must pay attention to a view, especially among private-sector economists, that the strong yen and the low stock prices in Japan will put a brake on the nation's economic recovery. In addition, sluggish economic conditions in the United States and Europe are likely to negatively affect the Japanese economy.

According to a Kyodo News survey of 105 major enterprises, many mentioned the strong yen as a factor that makes future prospects cloudy. A majority of the enterprises surveyed said moving operation bases abroad will be accelerated as a means of strengthening their business.

This could result in hollowing out of Japanese industry, impacting the performance of subcontracting firms and causing the employment situation to deteriorate.

The power shortage caused by the severe accidents at the Fukushima No. 1 nuclear power plant is also hampering economic activities of enterprises. Many of them cannot make dependable production plans because of uncertainty over future power supplies.

The government and the Bank of Japan must flexibly take necessary measures to help underpin economic activities.

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