Japan’s debt-mired economy debilitated further by deflation
Japan’s economy, the third-largest in the world, has huffed and puffed its way through 2017, mired in the same negative cycles since its asset price bubble’s collapse in the early 1990s.
And ‘Abenomics’, while rich in Japanese Prime Minister Shinzo Abe’s magniloquence, is still lacking in actual invigoration, experts have said, Xinhua reported.
At first glance, the world’s third-largest economy growing an annualized 2.5 percent in the July-September quarter and beating the preliminary reading of a 1.4 percent expansion, bodes rather well for Japan.
But this comes thanks to a significant upgrade to capital expenditure figures driven higher by an upswing in tourism owing to relaxed visa regulations, yet against a very bleak backdrop of mounting public debt and the ever-increasing threat of what economists have dubbed as a ticking ‘demographic time-bomb’.
And despite years and various incarnations of the prime minister’s ‘Abenomics’ policy mix, which includes the Bank of Japan’s (BoJ) ultra-loose monetary easing policy, Japan has yet to break free from the shackles of deflation and the ‘deflationary mindset plaguing its people.
Japan has a public debt level globally never seen before at more than double the size of its $5-trillion economy. According to the Organization for Economic Cooperation and Development (OECD) in its latest evaluation, Japan, with its debt the highest in the industrialized world, poses ‘a serious risk’.
Japan’s sky-high debt resulted from the government here being unable to give up its decades-long fiscal addiction of lending, spending and borrowing.
“Japan’s over-reliance on debt has been prolonged by the government urging citizens to buy government bonds (JGB’s) in a cycle that has seen the government, in the private sector, lend and spend at will by constantly obtaining new debt borrowing,” said Hisao Katayama, a senior equity analyst at Nomura Securities Co.
“And such loose monetary policies, when other major economies are tightening theirs, are a double-edged sword,” Katayama added.
“While the policies include drastically lowered interest rates aimed at bolstering capex and wages, increased public services investment, has, in fact, as with years passed, hammered the government’s balance sheet this year. Expenditures have continued to spiral way beyond stimulus targets and a further delay to a scheduled tax hike for a third time to 2019 will prolong the deficit,” he said.
According to Japan’s Economy Minister Toshimitsu Motegi, the recent run of unbroken economic growth and the increasing output gap is evidence that Japan can finally escape from decades of deflation, especially if wages can be increased.
“There are a lot of improvements in the economy that point toward an end to deflation. To make sure this happens, we need to focus on productivity and wages,” Motegi said in November.
But economists have been quick to point out the fact that wages this year have stagnated and consumer prices have been painfully slow to rise.
Japanese wages rose just 0.2 percent in October from a year earlier, after adjustment for inflation, according to the labor ministry, marking their first rise since December 2016. A month earlier, wages dropped 0.1 percent from a year ago, down for a fourth consecutive month.