Japanese Economic Development

Japanese Stagnation 

• japan is still characterized as economically stagnant, weighed down by mounting debts and increasingly long-lived retirees 

  • IMF estimates that japan’s GDP growth slowed to 0.9% in 2018 from 1.9% in 2017

• japanese economy is more healthier than it has been over a decade with the annual GDP growth averaging 1.3% since 2012 

• abenomics — late prime minister shinzo abe’s efforts to rejuvenate the japanese economy 

  • consists of three “arrows”: 

    • monetary policy 

    • fiscal policy 

    • structural reform — most important for japan’s long-term growth trajectory. aims to bring about strong wage growth to boost household consumption — increasing women’s participation in labor force

• in the decade since the global financial crisis — gross national product is about 3% bigger than its GDP year after year 

  • happening because japanese business have been expanding production oversea to take advantage of cheaper labor and get closer to foreign customers like china and southeast asia 

• japan’s population is both aging and shrinking 

  • domestic consumer market will become even smaller 

  • wages have not been growing despite record-low unemployment

  • real problem lies in the growing trend of companies hiring more contract workers and paying them almost less than half what they pay full-time workers 

    • number nearly doubled to 20 million in 2017 from 11 million in 1999

GDP Growth in Japan

• japan’s economy post growth at an annualized 6 percent rate, one of the best figures that the world’s 3rd largest economy has seen since the mid 1990s

  • has more than double the estimates by economists and seemed too good to be true

• technical boom with some help from a post-covid19 bump

• economy is picking up after decades in the doldrums

• japan has been the poster child for an underperforming economy since the mid 1990s

  • dragged down by deflationary pressures with growth generally flatlining at 1.0-1.5 percent

• the jobless rate is just 2.7%, and there are 1.3 jons for every one of the (declining) number of job seekers as the population shrinks

  • college graduates have little to fear about finding a full-time job when they graduate

• one of the biggest drivers of growth in the latest data was a boom in exports coupled with a decline in imports

• the number of foreign tourist in japan shot up more that 1600% from covid-hit levels a year prior, reaching nearly 2.1 million in june

  • four times the level when japan launched a big overseas tourism push in 2012

  • before covid pandemic, chinese visitors made up the largest share of international tourists and were also among the highest spenders per person

• investment is rising, both among japanese and foreign companies as a weak yen, good infrastructure, and surprisingly low labor costs make it more attractive

• japan is in opening up a labor market still dominated by lifetime employment

  • government has launched another program to increase labor mobility, arguing that companies will not raise wages for people who are not at risk of leaving

    • not clear that the program will succeed any more than the string of other initiatives dating back a decade

• china poses multiple risks for japan’s economic growth

  • china’s stalling economy on japanese exports

  • china is japan’s biggest trading partner, accounting for 20% of all japanese exports

  • longer term — risk shifts to geopolitics and the chance of military conflict over taiwan

    • hits china, and also taiwan — japan’s fourth largest export market

    • could cute 3% off japan’s GDP

    • if japan is dragged into the conflict, trade with the rest of asia could be threatened and put japan at a risk to 50% of all their trade

Economic Freedom in Japan

• japan’s economic freedom score is 70.2 making its economy the 28th freest in the 2025 index of economic freedom

  • economic freedom score is higher than the world and regional averages

  • considered mostly free

• benefits from relatively good levels of economic freedom in all levels

  • supported by an effective judicial framework and the absence of corruption

  • overall progress in moving towards a greater economic freedom is uneven

  • lifetime employment guarantees and seniority-based wages are barriers to greater labor market flexibility

Quick Facts