Japan Enters New Phase of its Economic Recovery

Business/Government/Assignment Editors

NEW YORK -- September 9, 2005 -- The Japan External Trade Organization New York (JETRO NY) released a newsletter today highlighting a new phase in Japan's economic recovery, including political and business developments and their relation to the upcoming elections on September 11. It can be viewed at:

http://www.kwrintl.com/library/2005/focus41.html

A summary is presented below:

* Japan Making Significant Progress in Initiating Sustainable Domestic Recovery

The Japanese economy continued to yield positive economic news on multiple fronts during the second quarter of 2005. Unemployment and bankruptcies declined significantly while investment spending and machinery orders both increased. Employment and retail sales figures are now at their highest levels since 1997-98. Higher full-time employment, rising wages, and increased personal spending indicates that a self-sustained period of non-inflationary economic growth is being realized.

* Japanese Government Accentuates Commitment to Restructuring & Reform

Supporting Japan's economic recovery are the continuing efforts of its government to create a positive environment for restructuring, reform and foreign investment. These include: tax reforms, changes to the Anti-Monopoly Act, and the development of new policies regarding hostile takeovers. At the same time, the government is encouraging foreign investment, mergers, joint ventures, and even allowing the possibility of foreign hostile takeovers.

* Corporations Now Moving to Enhance Efficiencies and Shareholder Value

Complementing government-led initiatives for change, Japanese corporations have worked to consolidate, unwind cross-shareholdings, and embrace foreign investment. The Japanese corporate model is changing. There has been a surge in M&A activity leading to restructuring and the enhancement of operations competitiveness. At the same time, Japanese mangers are focusing on shareholder value, increasing the number of dividend payouts and share buybacks, emphasizing communication with outside investors.

* Investors Significantly Increasing their Involvement in the Japanese Economy

Inflows of foreign funds helped Japanese stock market indexes to hit four years highs in late August. These flows might be attributed to improved consumer demand, increased corporate spending and profitability, an increasing emphasis on stockholder value, and supportive government policies. The rising confidence in, and coverage of, Japanese economic trends is attracting a wider group of investors who recognize the merits of diversification and the favorable valuation of Japanese firms compared to competitors in Europe and the United States. FDI doubled between March 2004 and March 2005.

* Japanese Fundamentals Likely to Improve Despite Any Present Uncertainty

Increasing oil prices and the potential for economic weakness in China, Europe or the U.S. are possible risks for Japans economic recovery. However, Japan's increasing ties with India and Southeast Asia make it less vulnerable to the economies of China, Europe, and the United States. Regardless of the risks, the underlying fundamentals of Japan's economy are improving. Output is growing along with consumer spending and capital investment. At the same time, Japanese companies are valued at "historical lows" allowing for the prospect of considerable appreciation.

* Momentum Likely to be Sustained Regardless of September Election

Although the uncertainty generated by elections is never popular with investors, the September 11 elections has -- regardless of the outcome -- helped to spotlight the issues that underlie, and the importance of further movement to realize, Japans reform agenda. Continuing reform will help to further open Japan to foreign investment and lead to many exciting new business and investment opportunities. Finally, investor optimism remains strong, supported by the belief that Japan has reached the level of momentum needed to sustain its recovery.

Data, statistics and the reference materials presented within this newsletter have been compiled by JETRO from publicly-released media and research accounts. Although these statements are believed to be reliable, JETRO does not guarantee their accuracy, and any such information should be checked independently by the reader before they are used to make any business or investment decision.

For additional information on economic and financial trends in Japan, please contact Akihiro Tada, Executive Director of JETRO NY at Tel: 212-997-0416, Fax: 212-997-0464, E-mail: Akihiro_Tada@jetro.go.jp