Japanese economy

Japan: Economy at a standstill

Japan Times,

17 February, 2012

Real gross domestic product (GDP) in the October-December period of 2011 decreased 0.6 percent from the previous quarter, or an annualized 2.3 percent — the first dip in two quarters. This shows that the Japanese economy, which had been on a path of slow recovery after having been hit by the March 11 disasters and the Fukushima nuclear crisis, is now at a standstill.

The 2011 annual GDP in real terms dropped 0.9 percent — the first negative growth in two years — mainly because exports were stagnant due to the severe damage to supply chains caused by the March 11 disasters and floods in Thailand.

There are views that the Japanese economy in the January-March period for fiscal 2011 will grow more than 1 percent due to greater demand related to reconstruction from the March 11 disasters and expansion of consumer spending.

Reconstruction-related projects costing the nation ¥18 trillion are now in full swing and stimulating economic activity, but, unfortunately, no optimism is warranted. In the disaster-hit areas in the Tohoku region, business enterprises that are striving to revive their operations may find it difficult to secure the human resources they need because public-works projects are utilizing much of the available local manpower for reconstruction efforts.

Medium-size and small manufacturers that are subcontractors for larger manufacturers are finding themselves in a difficult economic predicament as they face strong pressure from their primary contractors to drastically lower the prices of their products. Primary contractors are threatening to buy parts from overseas makers if the subcontractors do not meet their demands. Struggling against the strong yen, some large manufacturers are moving production to foreign countries.

In 2011, Japan suffered a trade deficit for the first time since 1980. The surplus in Japan's current account balance in 2011 dipped more than 40 percent from the previous year, falling to a level below ¥10 trillion for the first time in 15 years.

In this kind of situation, it is important for the government to adopt polices that will energize businesses and stimulate their ingenuity as much as possible. As part of such policies, the government should carry out necessary deregulation to help stimulate the development of renewable energy sources. For their part, manufacturers should use their reserve funds to develop new technologies that can help to boost employment.