21 October 2018
Japan has posted four straight quarters of GDP growth. "Abenomics" appears to be working. Photo: Bloomberg
Japan has posted four straight quarters of GDP growth. "Abenomics" appears to be working. Photo: Bloomberg

Japan’s brightening outlook likely to win Abe another term

Japan has posted four straight quarters of GDP growth six years after the devastating earthquake and tsunami of March 2011.

The government has turned deflation into inflation, and corporate earnings are improving. There are also signs of the long-awaited wage growth.

Prime Minister Shinzō Abe’s so-called three arrows policy has apparently taken effect. More importantly, the nation’s fertility rate has started to creep up amid the brightening economic outlook.

Abe’s cabinet got an approval rating of 66 percent last month, a development that is likely help him secure another three-year term and make him the nation’s longest-serving prime minister.

In 2006, Abe became Japan’s youngest post-war prime minister at the age of 52. However, he was forced to step down less than a year into his term amid a slew of scandals involving his cabinet members.

He was re-elected in 2012 as the Japanese people sought changes following the 2011 earthquake.

Abe then launched his “Abenomics” growth plan, a mix of radical monetary easing, fiscal stimulus and structural reforms.

However, Japan has continued to grapple with fragile and low inflation five years after he was sworn in.

The first arrow in his economic policy is massive monetary easing, which would depreciate the Japanese yen and get rid of deflation.

The second arrow is expanded fiscal spending through a hike in the consumption tax and a cut in the business tax, the objective of which is to encourage companies to expand investment.

Abe’s administration has done a good job in delivering the two arrows.

However, the third arrow of reviving private investment has yet to hit the mark. Private companies are reluctant to step up investment, thus failing to help sustain the economic growth momentum.

Private sector investment started to pick up in the second half of last year on the back of strong exports and an influx of Chinese investors.

Non-financial sector investment rallied 3.8 percent in the fourth quarter of last year, and investment in the manufacturing sector soared 7.4 precent, the highest in almost a decade.

That has resulted in improving profitability. Japanese corporates reported a 16.9 percent jump in pre-tax profit to 20.76 trillion yen (US$180 billion) in the fourth quarter of 2016.

The average household income rose 2.5 percent in a survey in July last year, the first increase in three years.

Meanwhile, inflation has returned. The consumer price index rose 0.4 percent from a year earlier in January, the first rise since 2015.

The birth rate is even more encouraging. Japan’s total fertility rate (TFR), the average number of children a woman has in her lifetime, hit 1.46 in 2015, the highest since 1994.

It also marks the third consecutive year of increase. It’s expected that the birth rate may rise further due to people’s growing confidence in the economy.

This article appeared in the Hong Kong Economic Journal on March 10

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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