Recovery only benefiting a few

The Cabinet Office on May 16 announced that Japan’s real gross domestic product (GDP) in the January-March period increased 0.9 percent, or an annualized 3.5 percent, from the previous quarter.

But ordinary households have yet to feel tangible benefits from Prime Minister Shinzo Abe’s economic policy, the main component of which is massive monetary easing by the Bank of Japan. Growth in part was boosted by brisk stock transactions attributable to the Abe administration’s economic policy.

The government should keep in mind that unless wages and employment increase, it cannot claim that the Japanese economy is undergoing a steady recovery.

Japan’s economy expanded for two consecutive quarters, with the annualized growth rate in the January-March period much greater than the annualized 1 percent increase registered in the October-December period.

Consumer spending, which accounts for about 60 percent of Japan’s GDP, rose just 0.9 percent from the October-December quarter. The increase was driven by spending by wealthy individuals who made money through stock price increases and splurged on luxury goods such as jewelry, watches and paintings.

Housing investments are also up 1.9 percent, mainly due to 3/11 disaster reconstruction and consumers seeking to buy homes before the consumption tax increases in April 2014. The government should brace for a fall in housing sales once the tax hike goes into effect.

A U.S. economic recovery and a steep drop in the yen’s value caused by the BOJ’s massive monetary easing benefited export-oriented companies. Exports, pushed by brisk car sales overseas, expanded by 3.8 percent. Further growth in exports will largely depend on how the U.S. economy fares in the next quarter and whether Japan-China relations improve.

The government must pay attention to the possible negative effects of the cheaper yen, including increases in the prices of daily necessities and imported energy and raw materials, such as liquefied natural gas for thermal power stations, and iron ore and coal for steel production.

Despite the annualized 3.5 percent GDP increase, many executives do not seem to be very confident about current economic conditions, as shown by the fact that capital investment decreased 0.7 percent in the January-March period from the previous quarter. In the past few years, many manufacturers have moved production centers to foreign countries due to the strong yen. It will not be easy to move production back to Japan.

Mr. Abe on May 17 announced a second round of economic measures. The government must make sure that they will promote the growth of new industries in Japan and lead to an increase in domestic capital investment. This is critical because large spending on public works projects, as pushed by the Abe administration, cannot continue to underpin the economy in the long term.

  • YoDude12

    My electric bill is up 18%. My water bill up too. I am paying about 15% more for the petrol I put in my car since Oct. of 2012. Nothing is going to get better for the majority of people who will continue to see inflation overtake any rise they will see in wages. The richest may get richer, as some exports will be cheaper for those who purchase them, But please tell me how a cheaper “made in Japan” vehicle bought by an Australian, or a Canadian, or a Brit is going to be cheaper for me when the cost of the imported resources to make the cars just went up 25%.
    “Abenomics” is smoke and mirrors, and it is going to bite people in the tooshie pretty soon.

  • YoDude12

    My electric bill is up 18%. My water bill up too. I am paying about 15% more for the petrol I put in my car since Oct. of 2012. Nothing is going to get better for the majority of people who will continue to see inflation overtake any rise they will see in wages. The richest may get richer, as some exports will be cheaper for those who purchase them, But please tell me how a cheaper “made in Japan” vehicle bought by an Australian, or a Canadian, or a Brit is going to be cheaper for me when the cost of the imported resources to make the cars just went up 25%.

    “Abenomics” is smoke and mirrors, and it is going to bite people in the ass pretty soon.