Japan - Economy
Japanese Prime Minister Kishida Fumio's keystone economic policy faced its first major test in the annual spring labor talks in 2022. Kishida had been urging both sides to agree on wage hikes, which he said were crucial to implementing what he called "a new form of capitalism." Kishida said wage hikes were the first step in realizing a strong cycle of growth and distribution that would eventually rebuild the Japanese middle class. Wages in the country had mostly remained stagnant over the past 30 years, while they soared in the US and Europe.
The International Monetary Fund predicted Japan would grow a meagre 2.3 percent in 2020 -- the slowest among developed countries. In comparison, the United States was expected to grow 3.1 percent, and the European area comprising Germany, France, Italy and Spain, 5.2 percent. China was forecast to grow 8.2 percent, and India 8.8 percent.
Tokyo stock prices surged to a 29-year high in the last week of November 2020, despite the fact that Japan's economy has been slammed by the coronavirus pandemic. The job market had undergone a sudden change on the back of the coronavirus pandemic. The ratio of active job openings to applicants was treading lower, and may soon fall below 1.0. Japan has struggled with a severe labor shortage in recent times, but companies were now cutting non-regular employees and asking workers to take voluntary retirement.
Many Japanese companies, especially small and medium-size enterprises, simply decided to call it a day. According to Tokyo Shoko Research, more than 40,000 firms had decided to go out of business as of October 2020 -- far outpacing the previous year. Experts believe the job market will continue to worsen slowly throughout next year.
New condominium and apartment sales in the Tokyo Metropolitan area were recovering. A Real Estate Economic Institute survey shows an increase of 67.3 percent in October compared to the same month last year. Real estate agents say demand for new houses and condos was rising, because many people were settling in to the work-from-home lifestyle. The Bank of Japan's easy monetary policy, with ultra-low interest rates, was also helping investors hunting for bargain shopping. Whether this trend continues in 2021 was unclear. Most housing loan screenings were judged upon a borrower's salary and winter bonus in the previous year -- both of which were expected to broadly shrink this winter. In short, people may have a harder time getting a loan in 2021.
With the coronavirus pandemic battering the global economy, a V-shaped recovery looked unlikely. Officials forecast Japan’s annual growth to shrink 4.5 percent for the fiscal year to March 2021 as exports, tourism, and the airline industry were disrupted. Although data shows that consumption and production may have hit the bottom in early May, many experts, including one Bank of Japan board member, expect that even in fiscal 2022, the economy was unlikely to return to where it was before the outbreak.
Japan's Cabinet Office said 17 August 2020 the country's economy saw a historic downturn in the April-June quarter. GDP contracted by the most in 40 years as the pandemic upended the economy. The Cabinet Office said GDP shrank at an annualized 27.8 percent from the previous quarter in real terms. It's the worst result since comparable data became available in 1980. In April and May, the government declared a state of emergency. Personal consumption plunged as people stayed at home and businesses closed their doors. Exports also fell as global economic activity froze, resulting in a sharp decline in auto shipments.
The coronavirus pandemic had a significant economic impact, with Japan's GDP plunging during the January-to-March quarter. The Cabinet Office says GDP for the period shrank an annualized 3.4 percent from the previous quarter in real terms. It was the second straight contraction. Personal consumption, which makes up more than half of Japan's GDP, fell by 0.7 percent. People refrained from eating out and tourist activities. Car sales also dropped sharply. Exports plunged 6 percent as economic activity stagnated globally. Housing investment fell 4.5 percent, while corporate investment was down 0.5 percent. Analysts were bracing for the economy to take a bigger hit from the pandemic in the April-June quarter.
Kiuchi Takahide, Executive Economist at Nomura Research Institute, estimated it would take five years for Japan's GDP to return to its pre-pandemic level. He said the road back will be especially hard for the tourism and restaurant sectors, which had been hampered by measures introduced to fight the spread of the virus. Kiuchi said that these industries can't expect to recoup their losses through pent-up demand, which typically favors the automobile and home appliance industries.
A more serious issue, Kiuchi believed, was wage stagnation and decline. GDP figures show real wages fell by 3.8 percent in the second quarter this year, outstripping the 2 percent decline in the second quarter of 2009, when the global financial crisis was wreaking havoc. Kiuchi said the impact on earnings had materialized sooner than expected. He feared it could precipitate a negative spiral where shrinking incomes lead to a decline in spending, which triggers a further deterioration in business conditions and, in turn, a continued decline in wages.
Kiuchi added that the after-effects of an economic crisis tend to be more serious and last longer than expected. He noted that in the decade or so since the global financial crisis, Japan's industrial production had failed to rescale its pre-2008 heights, and was now declining again due to the pandemic. He said it will remain weak for some time because consumption had begun to slow again due to a resurgence in the virus in some parts of the world.
Since taking office in 2012, Abe has worked to revive Japan's economy using three "arrows" – flexible fiscal mobilization, monetary measures, and structural reform. The policy, aptly dubbed Abenomics, had proven particularly effective on two fronts: stock prices, and the jobless rate. At the end of 2012, the Nikkei Average was hovering around the 10,000 yen mark. Now, after more than seven years of aggressive monetary easing and increased public spending, it's floating around 23,000 yen. The Nikkei's performance seemed to belie the severe effects of the coronavirus pandemic.
In late 2012, Japan's unemployment rate was above 4 percent. The latest figure – about 2.8 percent – was surprisingly low compared to other countries in these unprecedented times. Indeed, a large part of Abe's relatively stable approval rating over the years can be attributed to the healthy jobs market, those buoyant stocks and also strong corporate earnings. In fact, the prime minister has steered Japan to its second-longest recovery period since World War Two.
After nearly eight years in office, Abenomics failed on enhancing productivity and women employment. Thanks to the second-longest economic upswing in postwar Japan, gross domestic product (GDP) rose for the first time since the 1990s — despite a shrinking population. Corporate governance reforms also opened doors to foreign investors who were allowed to snatch up iconic Japanese companies like Sharp. And when Japan became more liberal in handing out travel visas, tourism from across Asia exploded. Abe's was also the first administration to introduce special foreign-worker visas to make up for labor shortages due to dwindling population numbers.
Abe pushed companies to hike wages and his government raised the federal minimum wage each year he was in office. He also got rid of kindergarten fees. Still, the coronavirus pandemic has wreaked havoc, causing dramatic spikes in debt and exploding budget deficits. The specter of deflation looms on the horizon, as it did at the beginning of the Abe era.
Virtually every economic indicator showed the Japanese economy drifting into a serious depression which had been marked by soaring levels of public debt (130 percent of Japan’s annual economic output) and the highest unemployment rate in 50 years (officially five percent but twice that if U.S. methods were used, and with figures as high as 25 percent for those in their twenties). The country was experiencing growing stratification and the emergence of class disparities. Japan has seen an upsurge in the number of homeless men in the last decade and was beginning to see some family homelessness.
Prime Minister Shinzo Abe's government announced on 01 June 2016 that it would delay the hike scheduled for April of next year to October 2019. Studies show a consumption tax rise from 8 percent to 10 percent could net the government extra annual revenues of more than 50 billion dollars. The funds have been earmarked for social security -- such as medical and pension programs. The additional revenue would also speed pension payments and boost child welfare. Abe's postponement of the tax-hike also affects plans to restore fiscal health. The administration had aimed to turn Japan's primary balance into a surplus by fiscal 2020.
Credit-rating agency Moody's said 02 June 2016 the Japanese government's further postponement of the consumption tax hike called into increased question its ability to meet fiscal goals. The agency said that the decision, together with a fiscal stimulus package to be unveiled in the autumn, will be a negative factor when it assesses the credit rating of Japanese government bonds. It said Abe's administration will forego additional revenues worth around 1.0 percent of GDP per year by delaying the tax hike. It also pointed out that the unknown size of the planned stimulus package will likely prevent Japan from meeting its fiscal targets. Moody's rated the country's government bonds at A1, the 5th highest grade.
Japan's economy, the world's third largest, has fallen into recession. New data in NOvemger 2014 showed the economy shrank at a 1.6 percent annual rate in July, August and September, after an even sharper decline in the previous quarter. Textbooks often define "recession" as two consecutive quarters of "negative growth." The shrinking economy follows a tax increase that apparently discouraged spending by consumers and businesses. Stories in the financial press say the bad economic news makes it likely that Prime Minister Shinzo Abe will delay another planned tax hike and call an early election.
Japan's industrialized, free market economy was the third-largest in the world, surpassed by China in the year 2010. Its economy was highly efficient and competitive in areas linked to international trade, but productivity was far lower in protected areas such as agriculture, distribution, and services. Japan's reservoir of industrial leadership and technicians, well-educated and industrious work force, high savings and investment rates, and intensive promotion of industrial development and foreign trade produced a mature industrial economy. Japan has few natural resources, and trade helps it earn the foreign exchange needed to purchase raw materials for its economy.
Japan's population and gross domestic product (GDP) were both roughly 40 percent as large as US levels. GDP per person was very high, and Japan's consumers were quite wealthy by world standards. When Japan's higher living costs were taken into account, income per person was 70-80 percent of the U.S. level.
There were key differences between the Japanese and U.S. societies. Japan has a shrinking labor force. Its population was getting older because the birth rate was very low. Strict policies deter immigration. Japanese statistics indicate that population growth turned negative in 2005, and population was projected to continue to shrink. Women's labor force participation has been growing, but remains lower than in the United States. In general, Japan's workers were working shorter hours than in the past. The paucity of labor makes production in Japan expensive, and has forced Japan's firms to investigate strategies that use less Japanese labor, including further automation and moving production to other countries.
Job hunting in Japan was unique in comparison to other countries with the exception of South Korea. Lifetime employment was still normal in Japan, and few change jobs throughout their career. Approximately 94.4 % of students joined the workforce right out of college in 2014. It was still uncommon to change jobs, and only 5% of the total working population changes jobs on a yearly basis. This essentially means that a half of the workforce joins a company upon college graduation, and stays with the same company until retirement. Naturally, this puts students in job hunting mode while in college, a unique situation where twenty year olds commit to a company for life.
As the system was structured so that one can only join a company as a coveted new graduate from college, or as a high ranking manager towards the end of one’s career, the one major “job hunt” students engage in falls during their junior and senior years of college. All new hires were expected to start at companies in April, and were trained together to be lifetime employees. Since one was only eligible for the new hire category right after graduation, no job offer means falling off the standard employment track, or committing to another year as a college student in order to preserve new hire status, and go through the job hunting process again.
The pattern of wage changes in Japan has been formed by the process of shunto, the Spring Wage Offensive, a ritualized exchange of information and demands between national centers of labor and management that begins in the late fall. It culminates in the following April with actual negotiations between the enterprise unions and their employers. This institutional pattern began in 1955 and was soon well entrenched.
Current economic conditions in Japan still reflect the impact of a growth "bubble" in the late 1980s. After the bubble burst in 1990, industrial firms, financial firms, and households all found that their portfolio of speculative investments in real estate and stocks was suddenly worth much less than during the bubble.
The post-bubble recession continued through the second half of the 1990s and into the new millennium. Some temporary improvement in the economic outlook was seen in 1995 and 1996, partly due to a fall in the value of the yen and additional demand generated by recovery efforts for the January 1995 Great Hanshin-Awaji Earthquake. In 1997, however, a variety of factors, including a rise in the consumption tax rate, a reduction in government investment activity, and the bankruptcies of major financial institutions, quickly worsened the recession. Burdened with a huge volume of bad debt aggravated by still-falling land prices, financial institutions tightened their lending policies, thereby forcing companies to reduce plant and equipment investments. This, combined with falling exports caused by the Asian economic crisis, resulted in lower profits in almost all industries. Employment salaries and wages also fell, further dragging down consumer spending, and in 1998 the Japanese economy suffered negative growth.
In 1998 the government established a 60 trillion yen funding framework to provide the public funds necessary to promote economic recovery, and it also allocated an additional 40 trillion yen for emergency measures to deal with reduced lending by financial institutions. The national budget for fiscal 1999 included a large increase in public project spending, and action, such as an increase in tax credits for new home purchases, was taken to reduce taxes. Beginning in February 1999, the Bank of Japan instituted a 0% short-term interest rate policy to ease the money supply, and in March the government poured 7.5 trillion yen in public funds into 15 major banks.
As a result of these measures and growing demand for Japanese products in Asia, in late 1999 and 2000 signs of recovery were shown, such as increasing stock prices and revenue growth in some industries. In 2001, however, the economy slid back into recession because of domestic problems— sluggish domestic demand, deflation, and the continuing huge bad-debt burden carried by Japanese banks — as well as international factors that included a decline in Japanese exports due to deterioration of the U.S. economy. The unemployment rate, which had been only 2.1% in 1990, climbed up to 4.6% in 2011.
The economy bottomed out at the beginning of 2002, entering a period of slow but steady recovery that has continued through the middle of the decade. After lingering for more than 10 years, the negative after-effects of the bubble-economy collapse finally appear to have been largely overcome. The non-performing loan ratio of major banks fell from over 8% in 2002 to under 2% in 2006, and this has contributed to a recovery in bank lending capacity as banks were once again able to fully function as financial intermediaries.
There was growing concern over the consequences that the aging of Japanese society will have for the economy. In 2011 approximately 23 percent of the population was 65 or older, but by 2055 this figure was projected to be about 41%. To minimize the effects of the contraction of the working population, it will be necessary to both increase labor productivity and to promote the employment of woman and people over 65. In addition, fundamental reforms will be necessary in pension and other social welfare systems in order to avoid large inequalities between generations with respect to the burdens born and benefits received.
The share of manufactured goods as a percentage of all Japanese imports has greatly increased since the mid-1980s, exceeding 50 percent in 1990 and 60 percent in the late 1990s, and this has spurred fears of a hollowing out of Japanese industry. Growing trade friction in the second half of the 1980s and the steep rise in the value of the yen impelled many companies in key export industries, notably electronics and automobiles, to shift production overseas. Manufacturers of such electrical products as TVs, VCRs, and refrigerators opened assembly plants in China, Thailand, Malaysia, and other countries in Asia where work quality was high and labor inexpensive. For such products, the market share of imported goods now exceeds that of domestic items.
In recent years, a rapid increase in manufactured imports from China has caused particular concern. Between 2001 and 2005, Japan’s imports from China rose by 170%. During the same period exports to China rose by an even faster rate, 235 percent. Moreover, the share of Japan’s trade occupied by China grew to 19.4 percent in 2010,surpassing the 15.4 percent held by the United States to become the largest of any country. Japan’s digital home electronics and automobile-related exports were robust, with total exports to China exceeding the 100 billion dollar level since 2007. Since 1988 Japan has run a continuous trade deficit with China. However, a large portion of Japan’s exports to Hong Kong end up being exported to China, and if this was taken into account and Japan-China trade was examined from an export basis, Japan was actually running a trade surplus.
The simultaneous increase in the volume of both product exports and imports with China and the rest of Asia was partly the result of an international division of labor occurring as part of manufacturing globalization. Japanese companies export capital goods (machinery) and intermediate goods (components, etc.) to production facilities built through their direct investment in China, and then they import the finished goods back into Japan. There was still a vertical division of labor, with Japan specializing in knowledge- and technology-intensive modules and processes and China specializing in labor-intensive modules and processes. As China and other developing nations continue to improve their technical capabilities, however, the challenge for Japan’s manufacturing industry will be to maintain a comparative advantage in knowledge- and technology-intensive sectors.
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