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Japan: Economics Minister Confident in Economic Recovery - 2001-12-27

Japan's economics minister seems little bothered by the weakening yen, now at a three year low, although it worries other countries in Asia. Heizo Takenaka says he expects the country's economy to pick up a bit next year.

Most of the talk in Tokyo now is about the yen, which hit a three-year-low Thursday afternoon, briefly touching 132 yen to the U.S. dollar. At a news conference, Economics Minister Heizo Takenaka told reporters the yen is not out of line with economic fundamentals and that it has been moving in an expected range.

His comments reinforce earlier statements by government officials indicating Tokyo will tolerate a weaker yen.

Finance Ministry officials, however, have said they want the yen to avoid volatile moves. Currency market traders interpret that as talk to appease criticism of the weak yen from some of Japan's neighbors, such as South Korea and China. A weak yen makes their goods more expensive for Japanese consumers, and makes Japanese exports more competitive in world markets.

Government officials have been blunt in recent weeks about the weak economy. Mr. Takenaka, however, predicts a slight improvement in the next fiscal year, which starts April 1.

"One reason is inventory adjustment will proceed, and this will bring some positive aspect from the cyclical movement," he explains. "Secondly, we expect that the American economy will show a very strong sign of recovery in the second half of the next year. "

He also says that the Bank of Japan's loose monetary policy will help stop deflation, which has dragged down the economy, but not until 2003.

Mr. Takenaka says the government's economic emphasis now needs to shift to reducing Japan's bloated industrial capacity and pushing up consumer demand.

"The main purpose of the structural reform is to strengthen the supply side through deregulation, privatization, and fundamental changes," he says. "At the same time, we must pay reasonable attention to the demand side."

But with record-high unemployment and corporate bankruptcies surging, Japanese households remain reluctant to go on a buying spree, despite government exhortations to spend more.