Japan has emerged from its longest and most destructive recession since the Second World War, but leading economists have warned that the turnaround is threatened by a looming “hidden jobless” crisis.

The return to growth after four straight quarters of contraction came as government stimulus measures at home and abroad finally began to pay off. However, at 5.4 per cent, unemployment in Japan remains close to its record high and the true number may be far higher than that.

Takahide Kiuchi, an economist at Nomura Securities, said that corporate Japan and the country’s economy in general were concealing millions more unemployed. By his estimates, Japan will have about 2.5 million “hidden jobless” lurking in-house within companies or elsewhere by the end of the present quarter. If those people were to be added to the official unemployed statistics, the rate would surge to 9 per cent.

The jobless are concealed in several places. Many Japanese who have lost their jobs spend as long as possible living on their savings or off relatives, to avoid the stigma of signing on for benefits. In addition, the problem of “in-house” unemployment in Japan could be vast, involving companies that cannot or will not perform mass culls of staff even when there is no work for them to do, concealing labour surpluses in an attempt to maintain their corporate reputations.

The return to positive GDP growth makes Japan the largest member of a growing club of “recession survivors”, developed economies that have managed to scrape their way back from successive quarters of economic contraction. Last week France and Germany became the first leading European economies to make the leap back. Hong Kong and Singapore have done the same in Asia.

In Tokyo the market reacted badly to the news, with a downward lurch that took trading floors by surprise. Brokers said that domestic investors had yet to be convinced that Japan’s recovery was sustainable and many chose to take yesterday’s news as an opportunity to lock in profits after a two-week rally. The Nikkei 225 Index was down more than 3 per cent at the close. Other Asian markets took similar punishment, with Shanghai closing down 5.8 per cent — its biggest one-day loss this year — and Hong Kong ending the day down more than 3.5 per cent.

Analysts said that Japan’s return to GDP growth could dramatically reshape the battlelines in the country’s general election, for which official campaigning has begun with the ruling party heavily on the back foot.

Yet savaged by public opinion and on course to lead his Liberal Democratic Party to an historic defeat on August 30, Taro Aso, the Prime Minister, will be fighting with a significant success to his name: he promised this year that Japan would be among the very first developed economies to claw their way back from recession, and he has — more or less — made good on that.

In a turnaround that was accurately predicted by a consensus of economists, Japan’s GDP grew by 0.9 per cent in the April-to-June quarter. The annualised real growth rate of 3.7 per cent broke a run of four consecutive quarters of contraction, a dismal procession that raised questions over Japan’s long-term capacity for growth.

For many, those questions, particularly Japan’s loss of competitiveness in comparison with China, South Korea and Taiwan, remain. Several analysts said that Japanese GDP growth may not be sustainable without further stimulus from the Government. Export growth has not persuaded companies to raise capital spending and even the big stimulus measures in China and the United States that have helped Japan so far will come to an end.

Analysts attributed much of the turnaround to the extraordinary speed with which corporate Japan slashed its inventories and was able, therefore, to benefit more quickly from the demand recovery when it came. American and European stimulus measures, such as the car scrappage subsidies for buyers of new vehicles, have strongly benefited Japanese companies.

Japanese government stimulus measures have succeeded in prompting consumption at home: an ill-planned scheme of cash handouts is not thought to have made a dramatic impact, but blanket reductions in highway tolls have had a surprisingly strong effect on domestic travel and tourism.

Consumer spending, which represents about 55 per cent of Japan’s GDP, increased by a real 0.8 per cent from the earlier three months.

More critical still has been the spectacular effort in Beijing to prevent China’s GDP growth rate falling far below the politically sensitive level of 8 per cent. The country’s massive $586 billion stimulus package has boosted demand for a range of Japanese exports, which were the principal driver of the second-quarter recovery.

But both government and private sector economists were quick to curb Japanese enthusiasm over yesterday’s news of recovery. They said that Japan’s growth trajectory would probably ease later in the year and was not immune to the risk of a dip back into recession if the misery still afflicting the United States is prolonged.

China investment

• Just weeks after China and the United States held their first annual strategic and economic summit and agreed to co-operate to lead the world out of recession, China is to invest heavily in US mortgages.

• China Investment Corporation, the sovereign wealth fund, is to put up to $2 billion (£1.2 billion) into some of the nine US funds set up with government backing to buy mortgage-backed securities, according to Reuters.

• The US Government’s public-private investment plan offers the nine funds, run by big names such as BlackRock and Invesco, leverage to buy as much as $40 billion of the toxic securities in order to help American banks to clean up their balance sheets.

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