FOCUS: Japan GDP up before election, but voters could be cool about data+

TOKYO, Aug. 17 Kyodo -
Japan's economy grew in the April-June quarter for the first time in over a
year and the news provided an opportunity for the ruling Liberal Democratic
Party to direct voters' attention to its measures to tackle the worst postwar
recession ahead of the upcoming general election later this month.

The Cabinet Office said Monday that Japan's gross domestic product rose an
annualized real 3.7 percent in the April-June quarter, allowing Prime Minister
Taro Aso and Economic and Fiscal Policy Minister Yoshimasa Hayashi to say that
a huge stimulus package prepared by the LDP-led government had helped the
economy to expand for the first time in five quarters.
While economists acknowledged that the stimulus package did have a positive
impact on the economy, they also warned that the economic outlook remains shaky
and people are probably not feeling the rebound as strongly as the GDP data
showed, with the nation's unemployment rate standing at a six-year high and
wages declining, including a sharp cut in summer bonuses.
Referring to the return to positive growth, Aso said at a press conference,
''We believe this is a fruit of the measures implemented so far.'' ''We have
concentrated on economic measures'' to fight the global recession and reviving
the economy will remain a top priority, he said.
His comments came ahead of the Aug. 30 House of Representatives election, with
polls suggesting that the main opposition Democratic Party of Japan is
well-positioned to wrest power from the LDP.
The government introduced one of the country's largest stimulus packages to
fight the global economic slump, including tax breaks, subsidies for
fuel-efficient cars and an ''eco-point'' system to reward purchases of
energy-efficient consumer appliances, which helped buoy consumer spending.
Hayashi said the positive effects of the stimulus package are likely to emerge
further from now on, while also expressing hope that the economy will shift to
a self-sustained recovery phase after receiving a boost from the government
measures.
Kyohei Morita, chief economist at Barclays Capital Japan Ltd., said the
manufacturing sector is the main beneficiary of the economic rebound as
overseas markets recover. But as manufacturers remain reluctant to make
investments and spend on personnel costs, the positive effects have not spread
much to households or the nonmanufacturing sector, he added.
''The LDP probably wants to emphasize its contribution to the 3.7 percent
growth, but since the beneficiaries of the current recovery are limited, its
claims may not resonate with many households or voters,'' Morita said. ''A
far-reaching recovery that includes households and nonmanufacturing businesses
is unlikely to be realized unless appropriate measures that stimulate household
income are devised.''
Meanwhile, Takuji Aida, senior economist at UBS Securities Japan Ltd., said the
LDP had managed the economic slump well so far and had implemented stimulus
measures in the right order, focusing first on boosting consumption in a bid to
help companies secure profits. Otherwise it would have ended up with no choice
but to implement larger employment measures than it now needs, he said.
Yoshiki Shinke, chief economist at the Dai-ichi Life Research Institute.,
expects the DPJ's economic initiatives to help buoy the economy a little more
than the LDP's, including the DPJ's plans to offer child-raising allowances and
to phase out highway tolls to support consumption. But if the DPJ fails to
raise funds to finance the measures by cutting wasteful public spending, it may
resort to issuing debt-covering bonds, resulting in a rise in interest rates,
he cautioned.
No matter how the election goes, ''there's no changing the fact that the
Japanese government needs to grapple with difficult tasks,'' such as supporting
the recent economic rebound while facing the need to tackle Japan's ballooning
deficit and surging unemployment rate, Shinke said.
Japan's July unemployment rate is due out Aug. 28, just before the election,
with economists saying it is just a matter of time before the rate hits a fresh
record high.
==Kyodo