'N o Reform, No Growth: Part Two" is the title of the government's economic and fiscal report released Tuesday. A sequel to last year's report with the same title, this year's adds up to a reaffirmation of Prime Minister Junichiro Koizumi's structural reform agenda. That is encouraging, yet people are left wondering whether Japan's faltering economy will really get back on its feet.
The report offers a gloomy analysis. The economy bottomed out in the first quarter thanks largely to increased exports to the United States. But its dependence on foreign demand makes it vulnerable to external shocks. With internal demand weak, the economy could slip back into a yet worse recession should the U.S. economy hit the skids.
Deflation, it says, is likely to persist for some time. Businesses are heavily indebted and banks are overburdened with bad loans. Layoffs and wage cuts are continuing across a broad spectrum of industries. So jobs and incomes won't increase immediately even if production picks up. Thus, routes toward a vigorous recovery are effectively closed.