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Japan's Economy Experiences Unexpected Growth - 2003-08-15

Unexpected growth for Japan's economy and a decline in the number of corporate bankruptcies are indicated in the latest government data, suggesting that Japan could be on the road to economic recovery.

Japan's economy expanded in the April to June period, spurred by business investment and an increase in exports and personal spending.

According to a report by the Cabinet Office, gross domestic product - the value of the nation's goods and services - rose 0.6 percent from the previous quarter, the sixth straight quarter the figure has improved.

Economic Minister Heizo Takenaka says the results were slightly better than he had expected. But he cautions that deflation in Japan is still deeply rooted.

On an annualized basis, GDP rose 2.3 percent. These numbers should be welcome news to Prime Junichiro Koizumi, who faces a leadership election in his Liberal Democratic Party next month amid fierce criticism from other senior party figures over his economic policies.

The number of Japanese corporate bankruptcies fell nearly 24 percent in July from a year earlier. The private research agency Teikoku Databank says it recorded about 1,400 bankruptcies in July, the seventh consecutive monthly decline.

The $5.9 billion in liabilities left by collapsed businesses in July represented a drop of almost 42 percent from a year before. The research agency says most of the business failures are the result of Japan going through three recessions in 12 years.

Despite the apparent good news, some observers outside the political arena are expressing caution about the economic data.

Bank of Japan Governor Toshihiko Fukui says that while there are signs of improvement, this does not mean there will be a quick recovery in domestic demand. He says he expects only a moderate pace of economic recovery for the time being.

One indicator of demand is seen in the level of sales at Tokyo department stores. The Japan Department Stores Association says Tokyo sales in July fell four percent compared with a year earlier. This was the 20th consecutive month of decline, suggesting consumers are still not confident about job security and wages.

UFJ Holdings, the smallest of Japan's four mega-banks, has announced a net profit of $1.1 billion in the first quarter of this fiscal year.

That amount is more than the bank had forecast for the full fiscal year ending next March. UFJ - still saddled with billions of dollars worth of bad debt - says solid sales of government bonds and rising stock prices have contributed to its earnings.