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TOKYO : Japan's economy has shown signs of pulling out of its worst recession since World War II, but the outlook for the world's second largest economy remains unclear.
The main concerns are fewer jobs, lower wages, and a transition in Japan's political leadership.
Japan's recession is technically over. For the first time in a year, its economy grew 0.9 per cent in the months from April to June.
"We are enjoying a recovery, thanks to exports and positive influence from the stimulus package," said Takahide Kiuchi, chief economist at Nomura Securities.
But it is still too early for a celebration as unemployment remains at a record high, and young people are worried about their future.
Japan's manufacturing giants have been badly hit by the global downturn, brought on by last year's financial crisis.
The jobless rate for July stood at 5.7 per cent, and it could go even higher.
Kiuchi said: "I think Japanese companies are still facing a serious capacity problem - that is excess production and excess labour. They have to reduce excess further.
"This kind of restructuring process may last until the middle of next year. During the process, I think unemployment rate will go up further to reach 6 per cent in Japan."
Wages have also fallen, and people are less inclined to spend. What Japan may have been spared from is seeing a collapse of its major financial institutions.
Japan experienced an economic bubble in the late 1980s. After the bubble burst, Japan faced a financial crisis. It was called the lost decade, and financial institutes had to deal with snowballing bad loans. By 2004 to 2006, their balance sheets looked better.
Some analysts said the banks were so busy with the last crisis that they had no time to expand overseas. And because of that, they were spared the full impact of the 2008 financial crisis.
Japan's economy is also in the hands of the Democratic Party of Japan (DJP) - a party not accustomed to being in government.
Incoming Prime Minister Yukio Hatoyama will form his cabinet on September 16. But his party has already been criticised for its lack of economic vision. - CNA /ls
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