The worst may be just about over forJapan's battered economy but economists said they do not expect
a vigorous recovery anytime soon. Japanese bank economists
polled by Reuters said the economy's 18 month-old slowdown is
likely to end in the first half of this year, helped by rising
exports, stepped-up government spending and falling prices. "The
economy will bottom out in the middle of the year," said
Sumitomo Bank Ltd chief economist, Masahiko Koido.
    Industrial Bank of Japan Ltd senior economist Susumu
Taketomi agreed. "It (the bottom) is in the offing," he said.
    But he added that the recovery will be slow. Growth in the
fiscal year beginning next month will only pick-up 2.2 pct,
from two pct in the current year, he said.
    Signs that the economy has just about weathered the worst
are increasing.
    The volume of exports in the first two months of the year
rose slightly on a year-on-year basis, after declining toward
the end of last year.
    Although this may be due to extraordinary factors such as a
sharp rise in car exports to rebuild depleted European stocks,
several economists said it could mark the beginning of a
recovery.
    Industrial production fell 0.7 pct in January, much smaller
than expected, and is forecast by the government to rise 0.3
pct in February and 2.6 pct in March. A Bank of Japan survey
released last week showed that the decline in Japanese
corporate earnings may be nearing its end.
    And the Paris currency accord last month has fostered hopes
the rapid yen rise has come to the end, they said.
    Six nations - the U.K., Canada, France, Japan, the U.S. And
West Germany - pledged in Paris last month to stabilise
currencies around current levels.
    The yen's 40 pct climb against the dollar over the last two
years has hit the export-driven economy hard, by forcing its
companies to raise prices and lose sales in the U.S. Market.
    "The important thing is the exchange rate," Taketomi said.
    If it stabilises firms will grow more confident and raise
investment in plant and equipment, although there are no signs
of that yet, economists said.
    A stable yen would also help exporters regain some of their
competitive edge just as the U.S economy may be starting to
recover, economists said.
    Domestically, the economy may get a boost from some
loosening of the government's tight fiscal policy said Haruo
Muto, manager of national economics at the Bank of Tokyo Ltd.
    The next reading of the economy's health should come early
next week with the release of gnp figures for the last quarter,
1986.
    Most private economists expect a rise of about 0.5 pct from
the previous quarter. In the third quarter, GNP rose 0.6 pct.
    But a senior government official said the fourth quarter
figures could surprise by showing a rise of more than one point
quarter-on-quarter. But he added that would be a statistical
aberration and not a significant shift in economic activity.
    To maintain year-on-year growth of around 2.5 pct, the
economy would have had to rise about 1.2 pct in the fourth
quarter as the final quarter of 1985 was strong.
     The rise in the fourth quarter of 1985 was probably a
statistical anomaly that was repeated in the final months of
1986, the official said.
    Economists said the fourth quarter figures were also
distorted by the government's sale of gold coins in the second
half of 1986.
    Because the coins were classified as legal tender, their
purchase did not show up in the statistics on consumer
expenditure. Consumer spending also tailed off in December
because of bad weather and smaller-than-normal end-year
bonuses, they said.
    As the government had to buy back some of the coins from
retailers because they were unsold, the government's
contribution to the economy in the fourth quarter may have been
boosted, economists said.
    Taketomi said it may have received a further boost from
government buying of farm products as the domestic crop last
year was good.
    The senior government official said the fourth quarter
performance of the domestic sector was probably worse than
generally expected, while that of the external sector was
better.
 REUTER
