Japan's Economy

tyreay · 10-31-2006, 05:28 AM

By HANS GREIMEL, Associated Press Writer

TOKYO - New figures Tuesday showed that Japan's economic comeback may have lost a little momentum, with a tick up in September's jobless rate and the ninth straight decline in household spending. The country's central bank meanwhile kept interest rates unchanged.

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Japan's unemployment rate rose to 4.2 percent in September, up from 4.1 percent posted in August. Meanwhile, spending by households headed by wage-earners fell by a bigger-than-expected 6.6 percent from last year, indicating personal consumption remains fragile.

Just hours later, the Bank of Japan released its semiannual report and said was keeping its benchmark interest rate unchanged at 0.25 percent, as expected. The central bank lifted that interest rate in July for the first time in six years, saying that healthy growth was firmly rooted.

Keeping rates low can encourage growth because it makes it more affordable for businesses to borrow money to fund expansion and for consumers to borrow for investments and purchase.

"The data point to the economy losing some momentum and are a bit of a warning sign at a time when the Bank of Japan is inching toward raising interest rates," said Hiroshi Shiraishi, economist at Lehman Brothers.

"Fundamentally, the economy has improved quite a bit so a sharp slowdown seems unlikely, but there is a risk it could get stuck at this slow rate of nominal gross domestic product growth, and recent data do point toward that," he added.

Economy minister Hiroko Ota remained largely upbeat despite the jobless data, but said household spending must be carefully watched. Finance Minister Koji Omi maintained that the overall economy is still "on firm footing."

Consumer spending remains the worrisome wild card in Japan's economic comeback, said Masaaki Kanno, an economist at JP Morgan Securities in Tokyo. He said weak consumption will likely drag down economic growth in the July-September quarter. Kanno was expecting 1.2 percent growth, but now says it will likely be lower.

"There is still no clear sign consumption is picking up," Kanno said.

New data casts doubt on Japan's economy - Yahoo! News