The stock market turbulence in the year's first week of trading seemed to cast a pall over the prospects of the economy, the recovery of which remains shaky after three years under Prime Minister Shinzo Abe's trademark policies. The government forecasts that GDP growth in the fiscal year beginning in April will reach 1.7 percent in real terms — up sharply from around 1 percent estimated for fiscal 2015 and more optimistic than what many private-sector economists predict. The Abe administration should be on guard against the various downside risks to the economy and be ready to take appropriate steps.
The economic landscape remains a mixed picture. Japan narrowly escaped a second recession under the current Abe administration when the revised July-September GDP data marked annualized 1.0 percent growth from the previous quarter. But the pickup in consumer spending and capital investments by businesses remains sluggish, and exports are dampened by decelerating growth in emerging economic led by China.
Major companies continue to enjoy improved profits, and top executives of many of these firms — under constant urging by members of the administration — say they are ready again to offer wage hikes. It remains unclear whether pay raises will be broad enough across the economy to shore up personal consumption, which has remained weak since the first consumption tax hike in 17 years in April 2014. Wage gains have been outstripped by rising prices for much of the past three years, and while the global plunge in crude oil prices has slowed inflation to anemic levels in recent months, higher prices of food and other daily necessities have dampened consumers' appetites.