Japanese economic growth – now time to stimulate export

In my previous blog posting on Abenomics (Japan’s (Domestic) Economic Recovery – is this an urgent problem?), I pointed out that Japan’s struggle in exports should not be the greatest concern as Japanese economy showed other signs of recovery. However, was it my hasty judgment? Recently, Wall Street Journal posted several articles that are concerned about Japanese economic growth and its recovery.

According to Wall Street Journal article (Japan Export Growth Stalls as Economy Picks Up), Japan’s export grew just 1.7% in the fourth quarter of 2013 after a 2.7% annualized fall in the third quarter. It is said that Japan needs 5% growth in exports in order to meet 2.6% growth projected for the fiscal year ending in March. The major reason for Japanese export struggle is due to the fact that Japanese manufacturing sector has been moving overseas over the past years. Japanese electronics are now assembled in China, and car makers also increased production overseas. Furthermore, Japanese auto exports fall by 7% in last December, which could hurt export as well. The article suggested several solutions, such as reducing corporate tax and be on board for Trans-Pacific Partnership led by U.S, in order to remove trade barrier of rapid growing markets in emerging Asia.

So how “severe” is Japanese economy at the moment? Wall street journal article (Japan Growth Figures Disappoint) analyzed growth numbers of Japanese economy well. In October to December quarter, Japan’s annualized growth rate was 1%, a rather disappointing figure after Abe’s strong policies.  The picture below shows growth in Japanese economy after Abe’s regime. Although Japan has achieved four consecutive quarter of positive growth rate after Abe’s regime, the growth rate has been low (near 1%) for past two terms. Furthermore, private consumption index continued to increase but net export continued to decrease, as imports increase continuously while exports are struggling.

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One thing I did not consider during my previous blog post was the fact that Japan will be raising sales tax from 5% to 8% in upcoming April. During my previous blog post, I wrote that struggle in export is not a huge deal as Japan’s domestic consumption is large enough to boost the economy. However, now I feel like too much dependency on domestic consumption could be dangerous for growth of Japanese economy. I think Japanese government needs to act fast in order to stimulate the economy; reducing corporate tax to stimulate more domestic production for Japanese auto companies might be a solution for this problem.