Japan’s struggle against recession is real

30 years and Japan is still struggling to fight the recession. Unlike the other export oriented nations such as China and Taiwan, Japan fails to show any promising growth with only 0.50% average growth rate expectation. Also, the unemployment is only at about 3.5%. Ever wondered why it is so close to a recession?  

Let's look from the perspective of factors of productions. Prime Miniter Shinzo Abe policies of deregulating the economy, also known as "Abenomics", by pumping in currency has failed to a great extent. His massive infrastructural expansion accompanied by the increase in consumption tax backfired.  Following suit to Yuan, Bank of Japan tried to weaken the Japanese Yen in order to propel exports and revive the economy. But such bold move only had a limited effect from 2012-2013. Also, the government has failed to answer the staggering Debt-to-GDP Ratio of 248.1% (highest in the world). Thanks to the fear of increasing consumption tax from 8% to 10%, private investments remained muted in late 2013 and early 2014. To the contrary, the cost of imports rose dramatically. Also, consumer electronics from Japanese Companies no longer rule the roost as they face severe competition from China. Hence, the overall sentiments remain pessimistic despite continued effort. 

 

 

Suddenly, extending loans to India at throw away interest rates to make Bullet Trains makes a lot of sense right.

Another major factor for low growth is the aging population of Japan. With over 65% population over the age of 65 and soon to reach 40%, an aging population means higher retirement payments and lower productivity, which will further the government concern of high retirement payments. According to a McKinsey Report, with an economic growth rate of 1% and productivity growth rate at 1.2%, a working population of 62 million would be required in Japan by 2040. While at current productivity growth rate, only 49 million people would be classified as working population by 2040. To continue, aging population has been a significant cause of low consumer spending as well.

Natural disasters such as earthquakes and tsunamis are another potent cause for low productivity. Though little can be done to prevent the damages against the Act of God, the government is trying its best by leveling spendings to bridge the gap of productivity. Such natural disasters can disrupt productions and cause a shortage in supply for almost three months. The 2011 earthquake in Japan killed atleast 28,000 people and displaced about 465,000 people, reducing countries power supply by 40%. It caused a loss of $360 billion (almost 5-6% of the economy's production).  The earthquakes only add to Japan's economic challenges of massive government debt, rising commodity price and an aging labor pool.