Although Japan has caused concern over the last couple of decades as a result of government deficits and long-term deflation, its economy seems to be coping better than a lot of people think. In fact, it has slowly regained its status as one of the world’s most attractive foreign investment destinations.
Indeed, Dhaval Joshi, senior vice president of European investment strategy at BCA Research, told the UK’s Financial Times: “Since the late 1990s, the growth in Japan’s real GDP per head has outperformed every other major economy. And unlike other major economies, income inequality in Japan has not increased, remaining amongst the lowest in the developed world.”
So here is a more in-depth breakdown of Japan’s economic development and outlook:
Japan's GDP growth continues to recover
As of 31 March 2018, the country saw a fall of 0.2% in its first quarter GDP, the first drop in two years and three months, after hitting a record of eight straight quarters of GDP growth.
But most economists believe Japan’s economy will continue its recovery as exports continue to drive the economy and companies continue to increase their capital expenditure on labour-saving machinery. The Bank of Japan (BOJ) expects the country to experience moderate growth rates during fiscal year 2019 due to a seasonal slowdown in business’ fixed investments and a scheduled consumption tax hike.
Strong corporate profits and capital investment
Both corporate profits and capital investments have been growing at a strong pace due to overseas demand, with rationalisation and the introduction of automation driving the capital investment side of things.
Thanks to the last eight quarters of consecutive GDP growth due to global demand for exports, which have generated record corporate profits and boosted capital investments, confidence in small and medium-sized businesses has improved significantly.
According to the BOJ’s March Tankan (Short-Term Economic Survey), large manufacturers’ overall assessment of business conditions also improved for the fifth straight quarter, hitting a high of +23. The confidence index among small and medium-sized businesses reached +20, the highest level recorded since August 1991.
On the downside though, current trade tensions between the US and China could lead to the Yen appreciating, which would affect the price of Japanese exports. Corporate profits could stumble as a result.
Improving employment levels
Japan’s unemployment rate continues to remain at between 2% and 3%, while the participation of women and senior citizens in the workforce is increasing steadily. In fact, the country’s latest unemployment rate stood at 2.5% in April 2018.
As Nikkei Asian Review’s news report pointed out: “Job availability was also unchanged at 1.59, the Ministry of Health, Labor and Welfare said. The ratio means there were 159 job openings for every 100 workers.”
In the main, Japan’s economic growth will be supported both by diverse groups entering the workforce and healthy rises in wage levels.
Household spending in Japan remains strong
The Consumption Activity Index (travel balance adjusted), which is calculated by combining various sales and supply-side statistics, contracted by 0.4% in the first quarter of 2018. But it increased across 2017 as a whole compared with the year before due to demand for replacing cars and household electrical appliances, improved department store sales and a recovery in the number of foreign visitors to Japan.
At the same time, services consumption saw moderate increases, which reflected an increase in communications charges and medical, healthcare and welfare fees.
Inflation close to 1%
The country’s average Consumer Price Index (CPI) in April 2018 stood at 0.7%, which is a positive sign given the country battle with deflation for many years. Although it is still some way from achieving the Central Bank’s inflation target of 2%, the BOJ believes it is within reach, backed by improvements in Japan’s output gap and a rise in medium- to long-term inflation expectations.
Junichi Kato is managing director of TMF’s operations in Japan. Junichi has worked for almost 30 years in various branches of business, including marketing, sales, supply chain management, strategic management and outsourcing across Europe and Asia. He holds a Doctor of Business Administration in Strategic Management from Cranfield University and an MBA from Ashridge Business School.
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Although Japan has caused concern over the last couple of decades as a result of government deficits and long-term deflation, its economy seems to be coping better than a lot of people think. In fact, it has slowly regained its status as one of the world’s most attractive foreign investment destinations.
Indeed, Dhaval Joshi, senior vice president of European investment strategy at BCA Research, told the UK’s Financial Times: “Since the late 1990s, the growth in Japan’s real GDP per head has outperformed every other major economy. And unlike other major economies, income inequality in Japan has not increased, remaining amongst the lowest in the developed world.”
So here is a more in-depth breakdown of Japan’s economic development and outlook:
Japan's GDP growth continues to recover
As of 31 March 2018, the country saw a fall of 0.2% in its first quarter GDP, the first drop in two years and three months, after hitting a record of eight straight quarters of GDP growth.
But most economists believe Japan’s economy will continue its recovery as exports continue to drive the economy and companies continue to increase their capital expenditure on labour-saving machinery. The Bank of Japan (BOJ) expects the country to experience moderate growth rates during fiscal year 2019 due to a seasonal slowdown in business’ fixed investments and a scheduled consumption tax hike.
Strong corporate profits and capital investment
Both corporate profits and capital investments have been growing at a strong pace due to overseas demand, with rationalisation and the introduction of automation driving the capital investment side of things.
Thanks to the last eight quarters of consecutive GDP growth due to global demand for exports, which have generated record corporate profits and boosted capital investments, confidence in small and medium-sized businesses has improved significantly.
According to the BOJ’s March Tankan (Short-Term Economic Survey), large manufacturers’ overall assessment of business conditions also improved for the fifth straight quarter, hitting a high of +23. The confidence index among small and medium-sized businesses reached +20, the highest level recorded since August 1991.
On the downside though, current trade tensions between the US and China could lead to the Yen appreciating, which would affect the price of Japanese exports. Corporate profits could stumble as a result.
Improving employment levels
Japan’s unemployment rate continues to remain at between 2% and 3%, while the participation of women and senior citizens in the workforce is increasing steadily. In fact, the country’s latest unemployment rate stood at 2.5% in April 2018.
As Nikkei Asian Review’s news report pointed out: “Job availability was also unchanged at 1.59, the Ministry of Health, Labor and Welfare said. The ratio means there were 159 job openings for every 100 workers.”
In the main, Japan’s economic growth will be supported both by diverse groups entering the workforce and healthy rises in wage levels.
Household spending in Japan remains strong
The Consumption Activity Index (travel balance adjusted), which is calculated by combining various sales and supply-side statistics, contracted by 0.4% in the first quarter of 2018. But it increased across 2017 as a whole compared with the year before due to demand for replacing cars and household electrical appliances, improved department store sales and a recovery in the number of foreign visitors to Japan.
At the same time, services consumption saw moderate increases, which reflected an increase in communications charges and medical, healthcare and welfare fees.
Inflation close to 1%
The country’s average Consumer Price Index (CPI) in April 2018 stood at 0.7%, which is a positive sign given the country battle with deflation for many years. Although it is still some way from achieving the Central Bank’s inflation target of 2%, the BOJ believes it is within reach, backed by improvements in Japan’s output gap and a rise in medium- to long-term inflation expectations.
Junichi Kato is managing director of TMF’s operations in Japan. Junichi has worked for almost 30 years in various branches of business, including marketing, sales, supply chain management, strategic management and outsourcing across Europe and Asia. He holds a Doctor of Business Administration in Strategic Management from Cranfield University and an MBA from Ashridge Business School.
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Japan proposes subsidising infant care and education
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