Friday July 24, 07:03 AM
Japan's economy recovering, but risks remain: govt
TOKYO (AFP) - Japan's economy appears to be on the mend after its worst recession in decades but still faces threats from rising unemployment and renewed deflation, the government said Friday.
The world's number two economy has been showing "signs of recovery", helped by government stimulus measures, the Cabinet Office said in an annual report, noting that the slump had been "extremely deep."
"On the other hand, the economy still faces big downside risks," with firms under pressure to slim their workforce following a dive in factory production, it said.
Japanese companies had about six million more workers than they needed in the three months to March, the largest amount of excess labour since comparable records began in 1980, according to the report.
Japan's unemployment rate climbed to 5.2 percent in May, approaching a post-World War II high of 5.5 percent, which was last seen in April 2003.
There are fears that the jobless rate will climb further as companies try to recover from heavy financial losses caused by the global economic downturn.
Battered by a slump in exports, Asia's biggest economy is reeling from its worst recession in decades, although recent rebounds in exports and industrial output have sparked hopes that the crisis is easing.
Japan's trade surplus grew in June for the first time in 20 months as exports fell at a slower year-on-year pace, the finance ministry said Thursday.
But the government also noted there was a risk of another bout of deflation. Core (Berlin: LJ1.BE - news) consumer prices fell a record 1.1 percent in May from a year earlier.
Japan was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, prompting consumers to put off purchases in the hope of further price drops and reducing corporate earnings.
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