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Japan Suffers 2nd Quarterly Dip in a Row


TOKYO — Japan's economy declined by 1.4% in the October-December quarter, or 5.5% on an annualized basis, as the government spending spree tailed off and the private economy remained weak. Tokyo has spent more than $1 trillion over the past decade with relatively little to show for it trying to get back into the fast lane.

"The Japanese economy has been a bit like a Frankenstein monster," said Russell Jones, chief economist with Lehman Brothers Japan. "When you charge it full of electricity, it sits up in bed. But as soon as you turn the power off, it falls back down."

Technically, this second contraction of GDP in a row following the 1% decline seen in the July-September quarter means the world's second-largest economy has slipped back into a recession. But economists say behind the chart, the patient is showing some new signs of life and appears to be in a slow recovery mode.

In particular, the data suggest companies are proceeding with painful restructuring plans, investing in automation and information technology and paring their inefficient distribution systems--all steps necessary longer-term to fuel a turnaround.

"There's a new will to compete among Japanese companies," said Jesper Koll, chief economist with Merrill Lynch Japan.

That said, the process is expected to drag along for some time. Restructuring, particularly in Japan, is a slow process as people are let go through attrition and strong corporate ties are gradually unwound.

Nor have the bulk of Japanese companies signed on to the new rules. Economists say for every winning company, there may still be three losers. Even in the United States it took nearly a decade to lay the groundwork for the current expansion.

The 1.4% contraction seen in Japan during the September-December period is worse than the negative 0.5% to 1% figure most economists expected. That essentially brought Japan's gross domestic product back to the level seen in the fourth quarter of 1998.

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