Japan still third largest economy in the world
Despite the upheavals that the country has known and still knows, it still remains an essential economic and financial power. The resilience shown by the Japanese economy finds its source in the long economic boom, pre-coronavirus, that it has recorded. The archipelago has enjoyed 71 consecutive months of economic growth. Indeed, the economic boom began in December 2012 and ended in October 2018, in particular due to the trade war waged between the United States of America and the People’s Republic of China. This period of economic expansion had become the second longest after the war, coming just after the record 73 consecutive months of growth, achieved between 2002 and 2008, ended due to the financial crisis of subprime but nevertheless going beyond the period 1965-1970 which had lasted, at the time, 57 months.
With nominal GDP close to $ 5,000 billion last year, Japan therefore remained in the trio of world economic powers behind the United States and China. According to the Tokyo Regional Economic Service “ the country displays 2th current surplus in the world and has an exceptional domestic financial heritage: US $ 28,000 billion in financial assets (600% of GDP), held by households and private companies and primarily invested in Japan. Finally, the country ranks 6th world rank in terms of foreign direct investment “.
That said, the country of the rising sun officially entered recession in the first quarter of 2020. Japan’s economic situation has deteriorated and continues to weaken. The main causes of this crisis are due to the Covid-19 pandemic, the weakening of Japanese exports due to the decrease in external demand and the trade conflict between Washington and Beijing.
A power undermined by a crisis greater than the shocks “Lehman Brothers” and oil tanker
The economic and social consequences of the Covid-19 pandemic have been visible since February 2020: significant decrease in tourism, collapse in imports the following month, state of emergency reported in Japan for the period April 7 to May 25 which will be the source of a significant drop in household consumption and business output. Japan, renowned for its very low unemployment rate, will suddenly make the structural discovery.
According to the Ministry of Health, Labor and Social Affairs, the job / candidate ratio fell from 1.20 in May to 1.11 in June, thus reaching its level on ” lowest since October 2014 “. The job-to-candidate ratio of 1.20 means that there were 120 vacancies for every 100 job seekers. The current unemployment rate is around 2.8%. Rate which could, for the most optimistic economists, approaching 4% at the end of the year. Ryomaru Kumagai, economist at the Yamato Research Institute, estimates that the unemployment rate will rise to 6.7% in the absence of “Adapted economic measures” in the event of a second epidemic wave or other force majeure with similar consequences.
To this was added a national and international demand that has collapsed. If you look at the industrial production index curve, it hit a low last May but it hasn’t recovered from that. Other structural challenges are added, for example with the aging of the Japanese population or with the colossal public debt of 240% of GDP. that only strong growth can hope to absorb.
According to Tokihide Kiuchi, an economist at the Nomura Research Institute, once the crisis has passed, and provided it is resolved no later than the end of the second half of 2020, it will take “About five years to get back to the original GDP figures”. Is this necessarily a good thing? From an economic and social point of view, certainly. From an ecological point of view, it is debatable! This other crisis, with worrying long-term prospects, being deeply linked to human activities and growth of our consumption / production. However, everything is being done to revive the economic machine.
Programs designed to stimulate economic growth
As the pandemic persists, Japanese banks lent at a record pace in July and regional creditors continued to increase lending to small businesses. Statistics from the Central Bank of Japan (Nippon Ginko) reporta total of bank loans which increased by 6.3% in July compared to the previous year, reaching a record 572.7 trillion yen (4,550 billion euros) and an increase in loans of 5.1% for regional banks.
To note that loans from private financial institutions to cash-strapped businesses are backed by state guarantees, generating additional pressure on the community.
Then, many stimulus devices were developed. At the national level, for example, the government had set up a vast economic recovery plan of 110 billion euros long before the pandemic. This plan was completed in April and then May 2020 by two Covid-19 emergency plans. The total sum is gigantic since it corresponds to 40% of the GDP including 10% directly allocated in the form of an aid of 100,000 yen, the equivalent of 853 euros, to each resident of Japan. In parallel, the government has launched campaigns, such as the controversial “Go To Travel” promoting domestic tourism, intended to stimulate the Japanese economy.
Local authorities are not left out. In order to revitalize the economy of the territories, many cities have committed to sell affordable gift certificates which can only be used in their own city.
Recent household spending signals already a resumption of consumption. Budgetary measures, financial aid and the lifting of the state of emergency on May 25 are not unrelated to this upturn in consumption. Household spending is a key and essential indicator of private consumption since they represent more than half of Japan’s GDP.
Satsuki Katayama, Acting President of the General Affairs Office of the Liberal Democratic Party and former Minister of Regional Revitalization, confirmed this week that the country had recently entered a “weak” phase of depression. This gives hope for a resumption of economic growth even if she specified that “ we cannot expect a resumption of economic growth in a ” V ” shape “. Finally, we will note that no one, much less in Japan, questions the modern economic foundations which are based on the belief that infinite growth in a finite world is possible.
Jordan MEHRAZ / Mr Japanization
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