Tokyo's bustle at odds with economic outlook

---

Michiyo Nakamoto, FT Syndication Service
TOKYO: On any given weekend, the shops in Tokyo's newest retail complexes are bursting with young men and women searching for the latest trendy accessory or queuing for a taste of gourmet chocolates flown in from Paris.
But any evidence of a booming economy belies creeping signs elsewhere in Japan that things are not as hunky-dory as Tokyo's gleaming new buildings might suggest. Outside Tokyo, the streets of many regional towns are filled with shuttered shops instead of bustling crowds.
Although there have been hardly any corporate failures large enough to make the headlines, the number of bankruptcies overall has been inching up year-on-year for the past 12 months. Bankruptcies among small and medium-sized companies in particular are up 29 per cent in the first half of the year compared with the same period last year, according to Teikoku Data Bank, an independent research firm.
In perhaps the most worrying sign so far, the government this week revealed that the index of leading economic indicators hit zero for the first time in a decade.
So, after five years of growth, is Japan's economy slowly grinding to a halt?
Recent trends are giving some economists grounds for concern. "I am getting more and more concerned about the outlook for the economy," says Julian Jessop, international economist at Capital Economics, London.
"The Japanese economic recovery remains somewhat fragile," writes Tetsufumi Yamakawa, chief economist at Goldman Sachs. "The probability of a recession occurring within the next six months has not reached the danger level of 60-70 per cent, but it is gradually rising reaching 40.5 per cent in September."
Not surprisingly, a big concern is the impact of the expected slowdown in the US and Europe. The Japanese economy has so far been supported largely by exports, particularly to China.
However, Japan will not be immune to a downturn in the US and Europe, which is widely expected in the wake of the subprime mortgage problems, although opinions differ on how serious the slowdown will be.
While China and the rest of Asia will continue to provide a home for Japanese exports, that is not sufficient to make up for the slowdown in the west, Mr Jessop believes.
And as the world economy weakens, there are questions about whether Japanese consumers will be able to take up the slack.
The signs are that, unlike the Tokyoites flocking to the newest stores to spend their money, Japanese consumers in general are in no mood to splash out any time soon.