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Japan’s Third Quarter GDP Falls One Percent, Renewing Criticism

By Clay Chandler
THE WASHINGTON POST -- HONG KONG

Japan’s economy contracted more severely than expected in the quarter ended September 30, dashing government and investor hopes that the once-vigorous nation had finally shaken off its eight-year malaise.

The Japanese government reported Monday that third-quarter gross domestic product -- the nation’s total output of goods and services -- shrank 1.0 percent from the previous three months.

The downturn, a reversal from two quarters of solid growth, was considerably sharper than the 0.1 percent decline expected by private economists. On an annualized, seasonally adjusted basis, Japan, the world’s second-largest economy and a key U.S. trade partner, suffered a staggering 3.8 percent drop.

The report provided fresh ammunition for skeptics in the high-stakes debate about whether the Japanese economy is on the mend. “The clear message here is that Japan has lost momentum,” declared Robert Alan Feldman, chief economist at Morgan Stanley Japan Ltd.

Feldman predicted the Japanese economy will shrink 1.3 percent in 2000; he is one of a number of high-profile Western analysts who have argued that a genuine recovery is still a long way off.

“This is not a report that is going to be welcomed by foreign governments,” Feldman said. “It makes it very difficult to imagine that the other industrial economies will be eager to cooperate with Japanese requests for intervention in the currency markets.”

But Nikko Salomon Smith Barney economist Jeffrey Young, who is optimistic about Japan, said Monday’s announcement did not shake his faith. He described the July-September figure as “part of a zigzag pattern around a rising trend.”

“At the end of the day,” Young said, “we’re still talking about an economy that is growing by about 1 percent a year or slightly stronger and is on its way to growth of about 2 percent or slightly stronger.”

Even the bulls, though, conceded Japan isn’t likely to post strong growth rates over the next three to six months and will be hard pressed to achieve Prime Minister Keizo Obuchi’s growth target of 0.6 percent for the fiscal year ending March 31.