The national economy has reverted to positive growth, but optimism cannot be warranted about future prospects. It is essential to expand the domestic demand through further wage increases and continued capital investment.
The real growth domestic product in the April-June quarter increased 0.5 percent over the previous quarter, or 1.9 percent on an annualized basis, according to preliminary figures. The positive growth was recorded for the first time since the October-December quarter.
A driving force for this is the recovery of domestic demand. Private consumption, which accounts for 60 percent of GDP, rose 0.7 percent, showing a quarter-on-quarter increase for the first time since the October-December quarter. This is apparently a rebound from the January-March period when demand was sluggish due to bad weather and other factors.
Employee compensation, which shows the income trend, jumped significantly due to the increase in the amount of bonus paid, thereby boosting the purchases of home appliances and other goods.
Corporate investment in plants and equipment continued its positive growth, stretching over seven consecutive quarters. Against the background of manpower shortages, the introduction of machines required for labor saving, and the acquisition of other goods, expanded.
It is encouraging to see that the two pillars of domestic demand fared well. It can be said for now that the underlying potential of the Japanese economy has been confirmed.
But no optimism is warranted about future prospects. Some economists point out that the steep rise in vegetable prices and self-restraint from going outside caused by the heat wave from July, among other reasons, will contribute to pushing down consumption.
According to the latest survey conducted by the Bank of Japan, the general price increase as sensed by respondents was 4.6 percent on average, far exceeding actual inflation.
Prepare for uncertainties
There is a risk that price hikes of everyday products such as food will dampen consumer sentiment and thus tighten purse strings.
Wage trends hold the key to whether the increase in consumption will continue.
In the business term that ended in March this year, listed companies chalked up record profits. It is important that moves to raise wages will spread against the backdrop of robust corporate performances.
This will encourage consumer spending and boost corporate performance further. Such a virtuous circle must be realized.
There is a possibility that a serious manpower shortage will hamper economic growth. A coordinated private and public sector effort is called for to work out measures urgently to promote the employment of women and elderly people.
Uncertainty is increasing also about the prospects of international affairs.
The biggest cause for concern is the intensifying trade friction between the United States and China. This could not only slow down the economies of the two countries but also exert various adverse effects on the world economy, such as trade contraction and turmoil in financial markets.
There is a risk that the U.S. restoring of sanctions against Iran will increase tensions in the Middle East. If crude oil prices rise sharply, it will dampen domestic demand due to an increase in production costs and other reasons.
It is imperative to strengthen the foundations of Japan's economy by steadily carrying out growth strategies and regulatory reform, thereby preparing the nation to deal with external shocks.
(From The Yomiuri Shimbun, Aug. 11, 2018)
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