Japanese Economy Improvement

Japanese economy has improved for the last 12 months with 4 successive quarters of positive nominal growth. The latest GDP figures of Q4 2005 show a nominal growth of 0.9% and real of 1.4%. The bad news is that GDP deflator still stands at -1.6% year on year which shows the persistance of deflation. (see our GDP Growth Table)Despite all the optimistic declaration, we still think that this is improvement is not durable as the economy is still propped ud by a huge government deficit of 8% of GDP although the Government Bond interest rate is still only around 1.5% on 10 years bond.This situation is not sustainable in the middle term. Furthermore forecast tax increases and structural problems such as weak demographics , rigid regulation, high tax rates that discourage initiative still weighs on the long term prospect of the Japanese economy.
Eric Perraudin
JMC