Jobless crisis hits Japan

BY PAUL WALLACE

Economics Editor

The Japanese unemployment rate rose sharply in April to reach its highest level for 40 years, in the latest sign that the Japanese economy is reeling under the blow of the appreciation of the yen.

Only last week, the Organisation for Economic Co-operation and Development cut its forecast for economic growth in the developed world this year, principally because it halved its prediction of Japanese growth to 1.3 per cent. Now economists think the outlook is for outright recession, which would have a further knock-on effect on the world economy.

"The rise of the yen has derailed an already weak economy that will, at best, remain very sluggish, at worse slip back into recession," warned Gerard Lyons, of DKB International.

Brendan Brown, of Mitsubishi Finance, warned that GDP might fall back in the second and third quarters of 1995.

The seasonally adjusted unemployment rate rose from 3 per cent in March to 3.2 per cent. Mr Lyons warned that unemployment was likely to carry on rising and reach 4 per cent or more by next year.

A continuing shake-out in labour would mark a decisive shift from the Japanese tradition of lifetime employment and job security. Larger companies are still sticking to this practice, but smaller and medium-sized firms may no longer be able to sustain the costs.

In another indication of the weakness of the Japanese economy, industrial production fell back in April by 0.2 per cent compared with March. To add to the gloom, the Ministry of International Trade and Industry forecast manufacturers' output would decline a further 3 per cent by the end of June.

The stalling in industrial production is a real concern because it threatens the principal engine of recovery. On an annual basis, industrial output was up nearly 7 per cent in April. Official confidence about the economy has rested heavily on the fact that industrial production has risen steadily since the final quarter of 1993. That confidence now looks misplaced.

The strain of coping with the super-high yen was revealed in a survey by the Economic Planning Agency indicating that big firms believe they need an exchange rate of 108 yen to the dollar to break even.

In the past, Japanese firms have shown an astonishing capacity to adjust production costs to deal with an ever-appreciating yen. But the gap they must bridge with the dollar worth less than 83 yen is enormous.

The previous strength in industrial production could indicate the gap is insuperable for many firms having to shift production overseas. The initial effect is higher industrial output as the new factories are kitted out with capital equipment exported from Japan. The long-term effect is the "hollowing out" of Japan's industrial base.

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When I was supporting Ray La Montagne I was six months pregnant. He had been touring for a year and he was exhausted and full of the cold. I was feeling motherly, so I would leave presents for him and his band: Tunnock's Tea Cakes, cold remedies and proper tea. Ray seemed painfully shy. He hardly spoke, hardly looked at you in the face. I felt like a dick speaking to him, but said "hi" every day. </p>
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He was being courted by the same record company who had signed me and subsequently let me go, and I wanted him to know that there were people around who didn't want anything from him. At the Shepherds Bush Empire in London, on the last night of the tour, Ray stopped in his set to thank me for doing the support. He said I was a really good songwriter and people should buy my stuff. I was taken aback and felt emotionally overwhelmed. Later that year, just before I had my boy Louis, I was l asleep in bed with Radio 4 on when Louis moved around in my belly and woke me up. Ray was doing a session on the World Service. </p>
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I really believe that Louis recognised the music from the tour, and when I gave birth to him at home I played Ray's record as something that he would recognise to come into the world with. </p>
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