Japan hit by recession? Critics, journalists worry
12, 17. 2007
Housing starts are declining, while prices are going up as a result of crude oil price increases. Moreover, the bubble economy pushed up by rising real estate prices shows signs of busting after the subprime mortgage crises. As the future of the economy is becoming unpredictable, business managers are losing courage. Critics and mass media are now reporting that Japan may be entering the mode of recession.
Housing constructions losing steam as a whole
Voices are heard that Japan entered "recession". (Image photo)
The consumer price index covering all products but perishable goods for October stood at 100.5 (against the base year of 100 in 2005), a rise of 0.1% over a year earlier or 0.2% over the previous month, according to the nationwide consumer price index for the month announced by the Internal Affairs and Communications Ministry on Nov. 30, 2007. The index covering all products including perishable goods was 100.9, rising 0.3% over a year earlier or also 0.3% over the previous month. The increases in crude oil prices apparently affected the consumer prices.
Bread prices are set to be raised in December and also instant ramen and other food prices in January 2008. These price increases are predicted to push up the consumer index by 0.1-0.2%.
According to an announcement by the Land, Infrastructure and Transport Ministry on Nov. 30, the housing starts in October declined 35.0% on year to 71,706, marking a decline for the fourth consecutive month. Many economists say the decrease in housing starts would adversely affect the economic recovery.
The housing starts decline was triggered by the amended construction standard law. The amendment was primarily meant to put stricter regulations on the approval of and examination on construction designs in the wake of the forgeries on anti-earthquake designs. But it resulted in cancellations and delays of construction works and other confusion at the construction sites.
Officials at the housing construction company Sekisui House, Ltd. say that it is consuming more time in making applications for the confirmation of housing designs. Coupled with the subprime loan issue, it cannot be denied that the future of economy is becoming unpredictable, slowing down the business activities as a whole, they said.
Sales are going down not only for the housing construction companies but such other related firms as real estate companies and construction materials dealers. Furthermore, major delays are being caused in the completion of factory constructions, while supermarkets are cancelling opening of their affiliated shops. These are no small blow to the economy. The effect of the housing starts decline on smaller local construction companies is even bigger and acute. According to Tokyo Shoko Research, Ltd., the number of construction companies that went bankrupt in October rose 25.8% on year to 390, the largest monthly figure of the kind in 2007.
Sell-out of new condominiums is a fake report?
"The offices that accept the application for the confirmation constructions are mostly located in big cities. If the number of such applications rise, local firms tend to be more severely affected and construction works are delayed. The smaller the construction companies, tighter the financial condition. The delays would thus easily become life-or-death matters for the smaller companies," people at a real estate company explained.
The weekly magazine Shukan Gendai said in its Dec. 15, 2007 issue that a Great Heisei Depression will hit Japan in the wake of the collapse of the real estate bubble economy. It noted the continued decline of the real estate fund following the coming-to-the-surface of the subprime problem, besides the decrease in the housing starts. It said that reports are going around that new condominiums being sold out but that such reports are deceiving.
Another factor for the recession is soaring crude oil prices. In the United States, oil prices are fluctuating around 90-100 dollars. In Japan, kerosene prices are going up as oil wholesalers have already decided to raise their prices starting with shipments in December. This is likely to affect the household budges as the weather now starts getting cold. Regular gasoline at the price of 150 yen a liter is beginning to be conspicuous on the price panels at filling stations.
Against this background, 32 of major100 business firms to which questionnaires were sent in a survey conducted by the Asahi Shimbun daily (between Nov. 12-26, 2007) replied that the "economy has come to a standstill". The number of the firms which replied so doubled from the previous survey conducted in June 2007. There were also five firms that replied "slowly going down", indicating that business managers worry about business slowdown.
Yasuyo Yamazaki, former president of Goldman Sachs Asset Management Co., said in NBonline on Nov. 28, 2007 that the Japanese economy will sink in a recession of a type of a TV gossip show. What he meant was that the Japanese people tend to make judgement and moves on the basis of information they get from TV gossip shows, while politicians think that the TV gossip shows reflect people's opinions. Against this background, he indicated that it is too slow for the politicians to take measures.