Japan’s economy is recovering to pre-pandemic levels but could slow again
The Japanese are rediscovering the joys of nights out at restaurants and karaoke, for the benefit of a Japanese economy that has finally returned to pre-coronavirus pandemic levels. However, improvement is looming on the bleak outlook, particularly as far as inflation is concerned. Aware of popular concerns on this issue, Prime Minister Fumio Kishida called on his government on Monday 15 August “To cope with the current emergency”. “The rising prices of basic foodstuffs, including bread and pasta, are of great concern”said Mr Kishida, who fears a more than 20% jump in wheat prices from October.
Concerns dampened the announcement a few hours earlier of a 0.5% increase in gross domestic product (GDP) between April and June, or 2.2% over a year. The Japanese economy grew for the third quarter in a row, slightly exceeding the level of the last quarter of 2019 just before the pandemic.
Yen weakness
A major contributor to this was private spending growth, up 1.2% qoq. “The jump in consumption was driven by restaurant visits, hotel stays and leisure activities”, observes Naoyuki Shiraishi of the Japan Research Institute. The Japanese began going out again after travel restrictions to stem a sixth wave of contamination were lifted in March. At the same time, business capital investment rose 1.4% on efforts to boost digital transformation, after falling 0.3% between January and March.
“Companies are less and less hesitant to raise prices and are doing so faster,” the Teikoku database found.
However, the euphoria was not to last. Aside from GDP growth falling short of economists’ expectations, which had forecast a 2.7% rise, the Japanese economy should suffer from the impact of the global economic slowdown around 137 on top of ongoing yen weakness to the dollar, the lowest level in 25 years. All of this fuels inflation. At 2.4% in June, it fell short of the levels of the United States and Germany, where they rose by 8.5% and 7.5% respectively. However, it displeases the Japanese, who were accustomed to low price changes during the long period of deflationary pressures that began in the late 1990s – and which seems to be drawing to a close.
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