Will the Japanese economy, which is now stranded, be able to regain pace and put itself on a track toward stable growth? With problems at home and abroad, the Japanese economy faces a crucial juncture this year.
The nominal gross domestic product (GDP) has increased by about 150 trillion yen over the 30 years of the Heisei era, while the ratio of registered job offers to registered job seekers, which shows the employment situation, is at a record-high level.
Yet the potential growth rate, which was higher than 4 percent 30 years ago, has been hovering low, at around 1 percent, for more than five years. Economic momentum is weak.
Pay increases vital
Deregulation and growth strategies will foster new industries and enhance productivity. The government must strive to help realize such a private sector-led propping-up of the economy.
It is also important for private enterprises to take a hard look at the future to become more active in making capital investments. Holding the key to bolstering the economy is for large companies, in particular, to use their profits not only to make investments abroad, but also to lead the expansion in domestic investment.
The current phase of economic expansion, which has been continuing since the 2nd Cabinet of Prime Minister Shinzo Abe was launched in December 2012, is expected to renew the postwar record length of expansion this month. Yet the basic tone of expansion is slow, with little sense of reality.
It stems from sluggishness in consumer spending, which accounts for the greater part of the GDP. In order to boost consumption, continued high-level pay increases are essential.
Fortunately, companies' business performance is currently brisk in general, enjoying record-high levels of profit.
Companies' internal reserves have reached a record high of 450 trillion yen. Those companies with brisk performances should return part of their profits to their workers. It is also important to have the trend of pay increases be spread among small and medium-sized companies, at which 70 percent of employees work.
At the same time, how non-regular workers should be promoted to regular workers can be considered a challenge.
The wages of non-regular workers remain at about 75 percent of those of regular workers when they are in their early 30s, and only at around half of those in their early 50s.
Under such circumstances, it would be natural for those non-regular workers to be unable to work with a sense of assurance. Companies are required to reduce the number of non-regular workers as much as possible and to make efforts to increase the number of regular workers.
The nation's economy cannot be solely complacent with the rise in the ratio of job offers to job seekers. At logistics and nursing care service workplaces, the labor shortage is serious.
Uncertainty overseas
Since the bubble economy burst, a shortage of demand has prolonged the deflationary economy for many years. But now, a labor shortage has become a drag on supply and could blunt economic growth. A growing number of companies have already gone bankrupt due to a shortage of workers.
According to a Bank of Japan survey, the proportion of companies that feel they do not have enough employees has increased and reached a level on a par with that in the final days of the bubble economy.
The government needs to create an environment that makes it easier for women and the elderly to work and also steadily push ahead with steps to accept more foreign workers who can hit the ground running in Japan.
Consumer prices have struggled to increase, and the prospect of completely breaking free from the shackles of deflation remains out of sight. In contrast to the central banks of Europe and the United States, which have extricated themselves from quantitative easing policies, the Bank of Japan has not drawn up an exit strategy.
It also is disconcerting that the government has only a limited number of measures at its disposal if the economy slows.
A decline in the profitability of regional banks, one negative impact of an accommodative monetary policy, has started to emerge. The Bank of Japan needs to tenaciously manage its policies while giving consideration to domestic and international economic trends.
The biggest concern for Japan's economy in 2019 is the fact that signs of a slowdown in the global economy are getting stronger.
If trade friction between the United States and China intensifies further, the impact on the world's economy will grow. As an increasingly anxious mentality washed over investors, the Nikkei Stock Average briefly dipped below the 20,000 mark at the end of 2018. The situation surrounding Britain's upcoming departure from the European Union has also descended into chaos.
It is impossible to dismiss the risk that the yen will gain further strength and capital will leave developing nations due to factors such as movements in U.S. monetary policy. This situation will require the government and the Bank of Japan to be even more vigilant.
In October, the consumption tax rate will be hiked from 8 percent to 10 percent. A reduced tax rate system will be introduced, which will keep the rate at 8 percent for newspaper subscriptions and food and beverages, excluding alcoholic drinks and purchases for eating in at dining establishments.
Entrench reduced rate
Snowballing social security costs mean further increases in the consumption tax rate will be unavoidable in the future. Ensuring the reduced tax rate becomes established will be essential for easing the financial pain citizens feel from the tax hike. Smoothly implementing this system is of vital importance.
A range of measures to stimulate the economy will be implemented to coincide with the consumption tax increase, including offering reward points to people who make cashless settlements. The government should get creative in designing a system that will not cause confusion among consumers and retail outlets.
The draft budget for fiscal 2019 became the first initial budget to top 100 trillion yen. Although tax revenue will increase, there has been no change to the reliance on debt, through the issuance of new government bonds, to cover one-third of the budget.
Japan's long-term debt is about 1.1 quadrillion yen, which is double the nation's GDP. This is the worst level among major nations. The government must not slacken its efforts to ensure fiscal consolidation, through steps including social security system reform and stricter compilation of the budget.
(From The Yomiuri Shimbun, Jan. 3, 2019)
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