The Japanese Economy - General Overview
State of the Economy
Despite four years of economic stimulus, Japan’s economy remains only 2.2 per cent bigger in real terms than when Prime Minister Shinzo Abe came to power promising massive structural reforms.
But while Japan’s government is pushing companies to increase investment at home and raise wages to boost demand, stimulate the economy and escape deflation, the pace of improvement remains subdued.
Movements in the bond and currency markets are a barometer of investor expectations about a country’s economic prospects - and those of its rivals. The Japanese Yen in particular tends to benefit from its perceived-safe haven status, particularly when there is turmoil in the Chinese markets.
Japan’s fiscal forecasts are banking on the structural reforms of Abenomics generating an acceleration in productivity growth to 2.2 per cent a year by the 2020s — the level prevailing in the 1980s.
Global growth has slowed abruptly over the past year, with the weakness seen in the latter half of 2018 continuing in the early part of 2019 amidst persisting trade tensions. Trade and investment have moderated sharply, especially in Europe and China, business and consumer confidence have declined and policy uncertainty remains high. At the same time, financial market conditions have eased, helped by moves towards a more accommodating monetary policy stance in many economies, and favourable labour market conditions continue to support household incomes and spending in the major economies. Sizeable fiscal and quasi-fiscal easing is occurring in a handful of countries, including China, but in most economies fiscal policy is offering only limited support for growth. Overall, given the balance of these different forces acting, global GDP growth is projected to ease from 3½ per cent in 2018 to a sub-par rate of 3.2% this year, before edging up to 3.4% in 2020. This slowdown is widespread, with growth set to moderate this year in almost all economies. Trade growth is projected to weaken further this year, to around 2%, the weakest rate since the global financial crisis and checking the speed at which global output growth can rebound from its current soft pace. Inflationary pressures are set to remain mild, with few strains on capacity in most economies.
OECD General Assessment