TOKYO—Japan is emerging as a surprising beneficiary of the global economic recovery, helped by its proximity to Asia's fast-growing economies and the strong presence of Japanese companies in the region.
While chronic ailments such as deflation and a runaway fiscal deficit continue to occupy the minds of Japanese policy makers, the country's economy has grown at an unexpectedly robust pace in recent quarters, thanks primarily to soaring exports to China, Vietnam, India and other nations.
At an annualized pace of 4.9%, the government said Thursday, Japan's first-quarter growth exceeded that of the U.S. and the European Union, which expanded by 3.2% and 0.8%, respectively. It was the fourth quarter of expansion for Japan following sharp contractions during a recession triggered by the global crisis.
While chronic ailments such as deflation and a runaway fiscal deficit continue to occupy the minds of Japanese policy makers, the country's economy has grown at an unexpectedly robust pace in recent quarters, thanks primarily to soaring exports to China, Vietnam, India and other nations.
At an annualized pace of 4.9%, the government said Thursday, Japan's first-quarter growth exceeded that of the U.S. and the European Union, which expanded by 3.2% and 0.8%, respectively. It was the fourth quarter of expansion for Japan following sharp contractions during a recession triggered by the global crisis.
Mitsubishi Heavy Industries Ltd. hopes to add to that growth. The maker of ships, power plants and heavy machinery aims to boost the share of overseas business to 63% of its total contracts by 2014 from just 36% in 2009. Once guarded about its technology, the company now seeks out local partnerships to further expand into Asian markets. The company projects orders from customers in emerging markets will rise to 1.1 trillion yen (about $12 billion) in 2014, compared with an average of 760 billion yen over the past three years.
"To cut initial investments to enter new markets in emerging economies, we are seeking joint ventures with major local companies, and signing technology assistance deals to gather licensing fees," Chief Executive Hideaki Omiya said at a news conference in late April.
Earlier this month, Mitsubishi Heavy received an order for three sets of boiler and steam turbines for thermal power plants in India for undisclosed terms, made possible through a joint venture with India's Larsen & Toubro Ltd.
Robust sales of Japanese products in emerging countries are beginning to set off a cycle of sustainable growth in Japan. As stronger exports shore up earnings, Japanese companies are boosting investments in plants and machinery.
With fears of job loss and pay cuts receding, some consumers are starting to allow themselves modest luxuries such as desserts after meals and day trips on weekends. Household spending grew by an annualized pace of 1.3%, rising for the fourth consecutive quarter. Until now, consumption has been kept from collapsing by government stimulus measures such as a cash-for-clunkers auto-sales program and subsidies for energy-efficient appliances.
"Conditions are falling into place for an autonomous recovery," said Keisuke Tsumura, a parliamentary secretary at the Cabinet Office in charge of economic policy.
Keeping that pace will be tough. Economists expect the pace of Japan's overall growth to slow starting from the second quarter as export growth begins to level off and the effect of domestic stimulus wanes. For all of 2010, the International Monetary Fund forecasts Japan will grow 1.9%, slower than 3.1% seen for the U.S. but above 1.0% for the euro area.
Still, intimate ties to Asian economies will likely give Japan and other Asian exports an economic tailwind if growth holds up. That could also take pressure off Tokyo to curb deflation or reduce government debt that, as a percentage of gross domestic product, leads the industrialized world—though those problems are likely to linger past the current expansionary period.
In the first quarter, Asia accounted for 55% of the value of Japan's overall exports, up from 50% a year ago and 47% in the 2007 period. By comparison, Asia accounted for 26% of U.S. export value, not much larger than Canada's 20% share and Europe's 23% for Europe.
"The structure of Japan's economy has changed dramatically since the beginning of this century," said Jitsuro Terashima, chairman of Mitsui Global Strategic Studies Institute, a research arm of Mitsui & Co., a trading company. "Until recently, we could define Japan as a country that fed itself through trade with the U.S., but that's not the case anymore." Last year, China became the No. 1 destination for Japan's exports, replacing the U.S. for the first time in modern history.
The heavy reliance on Asia's emerging markets, particularly China, also represents a risk. China's economy could get overheated without appropriate tightening steps from the authorities. It could slow down sharply and hurt Japanese exports if such steps are implemented too rapidly.
Toto Ltd., a maker of toilet and bathroom fixtures, has seen sales boom in China as its customer base expands from relatively wealthy cities to the interior. While the company's overall revenue fell 9% in the fiscal year ended March, sales in China grew about 10%, accounting for 5.8% of the company's global sales. Toto expanded its flagship showroom in Shanghai last month and plans to add another one in Nanjing in October.
"While we have been worried for quite a long time that China will slow down, we actually have seen a steady growth there," said President Kunio Harimoto during a news conference this month in Tokyo. "Given that, we can expect a nearly two-digit growth for some more time in the future."
Companies such as Mitsubishi Heavy and Toto now have the support of the Japanese government, which has taken a laissez-faire stance toward private-sector exports in recent decades. Japan's new center-left government has identified Asia's emerging markets as a "new frontier" for Japan's growth and next month hopes to unveil cheap financing and regulatory support for infrastructure projects abroad as part of its broad economic -policy package.
"We would like to see Japan's technology and expertise become an engine for sustainable growth in the region so Japan and Asia can grow side by side," Naoto Kan, Japanese finance minister, said at an Asian financial meetingearlier this month.
Investors have taken a notice. A survey released by Merrill Lynch this week showed that 8% of fund managers chose Japan as the market they wanted to overweight the most, down a notch from 11% in April but a sharp improvement from a low in November when 27% said Japan was their least-favorite market. So far this year, Japan's benchmarkNikkei 225 index is down 4.9%, an underperformance compared with the Dow Jones Industrial Average but better than indexes in London, Paris, Shanghai and Hong Kong.—
Miho Inada, Tomoyuki Tachikawa and Takeshi Takeuchi contributed to this article.
From: http://online.wsj.com/article/SB10001424052748703559004575256292145790152.html?KEYWORDS=YUKA+HAYASHI
