Japan's PM promises to support economy's recovery

Japan's new prime minister yesterday pledged to ensure the economy's fragile recovery continues, speaking in his first appearance before the key parliamentary Budget committee.

With elections to the lower house of parliament expected in June, Yoshiro Mori, who stepped in earlier this month when his predecessor Keizo Obuchi suffered a serious stroke, signalled he would continue the programme of massive deficit spending.

Separately, the Governor of the Bank of Japan said the zero interest rate policy would stay in place. Speculation the central bank would like to raise short-term rates has mounted, but Masaru Hayami said: "We cannot say at present that the economy has reached a condition where an end to deflationary concerns is in sight."

This appeared to reverse comments he made earlier this month indicating, to the consternation of the financial markets, that he would like to end the zero-rate policy. The BoJ has always said an end to the fear of deflation was a precondition for changing the policy.

New figures yesterday showing a sharper-than-expected fall in Japan's trade surplus suggested the economic recovery might be taking root. Imports surged 19.5 per cent in value, year-on-year, due to a combination of firmer domestic demand and increased oil prices.

Exports grew by 9.1 per cent, also a strong performance. The recovery at present rests heavily on exports as domestic demand remains subdued enough to have taken the economy back into technical recession, with declines in output in the latest two quarters.

Figures due later this week are expected to show the unemployment rate climbing to a record 5 per cent, and consumer prices continuing to decline.

Together, the import and export trends took the March trade surplus down 14.8 per cent compared with a year earlier, to Yen1.11 trillion ($10.49bn). The surplus for the full financial year to 31 March fell for the first time in three years. But Takuji Okubo, an economist at Goldman Sachs in Tokyo, said: "The size of Japan's trade surplus is still huge."

In addition, the size of the bilateral surplus with the US, never more politically sensitive than in the year of an American presidential election, has increased according to the latest figures.

It was up 26.3 per cent between March 1999 and March 2000, reaching Yen690.4bn.

The increase reflects ultra-buoyant US demand, analysts said.