The government’s tentative assessment that the current spell of economic expansion is likely to have continued for 57 months since December 2012 — and has tied the second-longest postwar boom from 1965 to 1970 in duration — may be misleading. The picture of the economy today is in stark contrast to what was happening in the late 1960s, when Japan was still in the midst of the postwar rapid growth period. It seems almost irrelevant to compare the duration of economic booms that took place at such different times. Equating the current spell of expansion to the 1960s boom should not lead to an overly optimistic judgment of the economy.
Among the several extended economic booms that the nation experienced in its post-World War II history, none may be more unlike the so-called Izanagi boom between November 1965 and July 1970 than the ongoing expansion under the watch of Prime Minister Shinzo Abe with his trademark Abenomics policies. Named after a deity in Japanese mythology, the 1965-1970 boom was marked by robust demand for consumer durables such as cars, air conditioners and color televisions. The economy grew at a double-digit annual rate in many of the years during the expansion.
In the current boom, the real-term growth in Japan’s gross domestic product reached 2.6 percent in fiscal 2013, but the economy shrank 0.5 percent the following year due to the protracted slump in personal consumption following the April 2014 hike in the consumption tax from 5 percent to 8 percent — although the Cabinet Office did not recognize that as a recession that interrupted the economy’s upward trend. GDP growth remained slow in subsequent years — rising 1.2 percent for both fiscal 2015 and 2016. The average growth is also much slower than during the 51-month, asset-inflated bubble boom of the late 1980s to the early ’90s — the third-longest postwar boom — when the economy grew by around 5 percent annually.
Japan — with its shrinking and rapidly aging population — is a much more mature economy than in the late 1960s and its growth potential is much lower. Aided by the yen’s depreciation under Abe’s watch, profits at major companies have surged to record levels. The jobless rate is down to its 22-year low of 2.8 percent, and the labor market is the tightest since the mid-1970s. Still, growth in wages remains slow and consumer spending continues to be sluggish. Nominal wages have grown less than 3 percent during the current expansion — a far cry from the 16 percent rise during the bubble years and the 204 percent jump during the Izanagi boom. The 2 percent annual inflation target, set by the Bank of Japan in the Abe administration’s bid to bust deflation, remains nowhere in sight.
Few people may realize that Japan’s longest postwar boom took place over a 73-month period from 2002 to 2008 — when Japan was deemed mired in its “lost” decades of economic doldrums that began in the 1990s. Despite the extended length of the upturn, growth during the period lacked the vigor of past booms and consumer spending was less than robust, leaving little impression among the public that the economy was indeed in good shape. Similarly, many consumers today may not share a strong sense that the Japanese economy is in an extended boom.
The government acknowledges that the economy has not evolved the way it did in past extended boom periods. The economy and fiscal white paper released in July recognizes that the benefits of the current spell of economic expansion have not sufficiently reached households. Rising corporate profits have not kick-started a virtuous cycle of the economy as growth in wages and consumption stagnates. It is an “unprecedented phenomenon” in this country that wage hikes remain slow despite the growing manpower shortage, the report says. Consumers’ penchant to cut expenses due to uncertainties over their future livelihood keeps consumption at sluggish levels, while the structure of consumer spending is changing as the nation’s population grays and more people either marry late in life or not at all.
The economy does appear to be picking up steam, with GDP marking its sixth quarter of growth in a row through the April-June period. There are questions as to whether the current boom was indeed not interrupted by the economy’s contraction in fiscal 2014. But that question aside, what should be stressed is not the duration of the boom period, but a sober assessment of the condition of the economy, which should then guide the government’s economic policy responses.