A long night's journey into the day

The data also shows the economy is bouncing back much more vigorously than most of the earlier predictions. Private sector economists earlier forecast an average growth of 1.2 per cent for the reporting period. Translated into annual figure, this would mean around 5 per cent expansion of GDP.

It was the fourth straight quarterly increase of Japan's GDP, but highest after the 2.5 per cent expansion that the country witnessed amid its bubble inflated economic performance back in the second quarter of 1990. As a result, optimism among country's policymakers and business leaders is running high and they are predicting a further improvement of the overall situation in coming days.

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During October-December 2003, personal consumption, which accounts for nearly 60 per cent of Japan's gross domestic product, rose 0.8 per cent, up from 0.5 percent recorded in July-September and 0.3 per cent in April-June. Cabinet Office is attributing the expansion in private consumption to brisk sales of digital household products like flat panel televisions, digital cameras, DVD players and car navigation devices.

This healthy trend in the consumption of digital products in Japan has already been marked for quite some time. Smart cameras with multiple functions, slim TVs and capacious discs are leading a turnaround not only in Japan's electronics industry, but the whole economy as well. Digital cameras, DVD devices and flat panel TVs have become three sacred treasures for domestic consumers. In the fiscal 2003 ending in March this year, sales of

DVD devices are projected to surpass those of videocassette recorders. Flat panel TVs are also posing a serious threat to those of their bulky rivals, and as for cameras, digital is already far ahead of still-photo film units in worldwide sales.

Unlike personal computers, which were initially seen by consumers as work tools and only gradually expanded among home users, sales of digital home appliances have virtually exploded, bringing much needed boost in personal consumption that helped the economy to see the light after an unusually prolonged period of darkness. The advantages of digital for consumers are manifold. High

capacity of sound and image recording, no deterioration of quality, and easy networking allow users to derive optimum satisfaction.

Digital cameras led the move to electronic appliances, where domestic shipment in 2001 for the first time exceeded those of conventional cameras. By 2002, digital camera shipments exceeded those of conventional cameras also in Europe and the United States. But this digital appliance revolution in Japan, which is helping the economy to come out of its period of stagnation, also has realigned winners and losers in the industry.

Capital spending during October-

December 2003 period expanded a real 5.1 per cent, the highest level in three years. This was mostly due to increasing construction volumes and stronger demand for robots, computers and turbines. Exports also marked 4.2 per cent growth, led mainly by robust economic recovery in Asia and the United States. The main export items during the period were automobiles, electrical parts, telecommunications equipment and flat panel TVs. Imports, on the other hand, rose 1.4 per cent, partly fuelled by the amount of high-priced goods brought back by the Japanese traveling abroad. On the declining side, housing investment in Japan

decreased by 1 per cent and public investment shrank 0.2 per cent. The performance report for the last quarter of the year shows that domestic demand pushed up GDP by 1.3 per cent, while external demand added 0.4 per cent.

In October-December 2003, consumers in Japan spent more than in the previous three months and companies ramped up equipment and factory investment. This means, parallel to strong exports, which until recently served as the sole engine of growth, domestic demand has finally started to support the process of recovery. Prime Minister Junichiro Koizumi has welcomed the stronger

than expected GDP performance report and expressed hope that this would help private sector economy to gain vitality.

But some economists say concerns about the prospect of the overall economic performance still exist, especially over the further appreciation of Japanese yen. They also doubt if the recovery in consumption can be sustained long enough to stimulate the economy internally. The value of Japanese yen, which is currently hovering around 105-107 to a dollar, is relatively low and might have negative impact on Japan's export if the trend continues for long. Moreover, any further appreciation of yen might even eat up a large chunk of benefits that Japan usually derives from its traditional export markets. As South Korean and Taiwanese producers are already competing with Japanese companies in such fields like liquid crystal technology and digital products, these emerging powerhouses might enjoy added benefit due to uncertainty in currency rate and catch up their Japanese rivals. Domestic consumption in Japan has certainly taken off, but much of the

country's economic steam still comes from export.

Commenting on the performance report of Japanese economy during the last quarter of 2003, Heizo Takenaka, minister in charge of Japan's economic and fiscal policy said he wanted to see exchange rates maintain a proper balance. But he also added that as the economy is gradually recovering, the government should take initiatives to transform this effect to local areas allover the country.

A blazing 7 per cent annual growth rate is no doubt a clear indication that Japan at last is showing strong signs of coming out of an economic mess that hindered progress in all other fields. But to make this journey forward a durable one, there is an urgent need for the government to take few more steps. Japan's banking system is still in deep crisis that resulted from huge accumulation of bad debts. Deflation is still all around and a sluggish service sector, troubled small and midsize firms and capsizing local economies -- all are standing as serious threats and need more attention for the recovery to be meaningful.