Jobs 'leading Japanese recovery'
(CNN) -- The world's second largest economy, Japan, is showing signs of a domestic recovery led by the strongest jobs growth in a decade, according to a leading economist in Tokyo.
The positive assessment by Macquarie Bank economist Richard Jerram backs similar comments recently by the Bank of Japan and the Japanese government, which said last month that the economy was continuing to recover from the decade long recession of the 1990s.
Still, Jerram said corporate Japan had not yet reflected the strength of the recovery in its profit forecasts which were "far too conservative."
"Recurring profit growth for Topix ex-financials is forecast at 1.4 percent in fiscal year 2005, despite predictions of 4.2 percent sales growth. This looks about 10 per cent too low," he said in a commentary on Friday.
Jerram said there have been increasing signs in recent months that domestic economic growth was improving after the distress of the 1990s.
"The change is most evident in the labor markets, where full-time job growth is the strongest in a decade," he said.
Japan's jobless rate in April fell a tenth of a percent to 4.4 per cent, its lowest level since 1998, according to government data.
Improvements in consumer spending and the strongest retail sales growth since the sales tax increase of April 1997 were being driven by a boost to wages income, Jerram said.
The wages boost also helped to explain why service sector activity and confidence prospered, even without the support of a positive industrial cycle, he said.
"Non-manufacturing companies are hiring for the first time in a decade, but so far their attitude to capital spending remains cautious. Stronger investment in coming months would seem consistent with the growth in full-time employment," he said.
Jerram said he expected the Bank of Japan to raise official interest rates in early 2006 "soon after inflation turns positive."
In the May issue of its monthly report the central bank said that the economy was expected to continue to recover but that deflation remained a problem.
The nation's consumer price index, which does not include fresh food prices, fell 0.2 percent in the year to March 2005, the seventh straight year of decline, the government reported last month.
Japanese Finance Minister Sadakazu Tanigaki said last month the economy was recovering at a steady pace but warned oil prices remained a risk factor.
