The Current Challenges for Japan’s Economy

The growth numbers of Japan seemed a little lower than the expectation of economists. The economy’s growth rate was at an annualized pace of 1% in the fourth quarter, which did not achieve the expected goal of 2.8%. The reasons behind this sluggish performance are the problems of export and domestic consumption.

Japan’s economy has been relying on export as its dynamic engine for a long time. Last year, Prime Minister Shinazo Abe has taken measures to weaken the value of yen in order to boost the export and stock market. However, although the yen’s value decreased sharply since the start of 2013, his policies didn’t have a clear effect on export last year. The export in fourth quarter was only 0.4% higher compared with the previous quarter according to Wall Street Journal. One possible reason to this problem is that more companies are producing products outside Japan so that the value of them will not be counted in the export. For example, Nissan Motor opened its new factory in Mexico last November in order to lower the cost of labor and raw materials and Honda Motor are planning to produce a new type of cars instead of exporting them from Japan. Since many factories start to produce and sell their product in other countries, the fall of yen could not actually help the export growth.

The weak confidence in consumers becomes another factor that hinders the economy growth. The Household spending rose 0.5% in the fourth quarter which was lower than the expected 0.7% rise. It is obvious that consumers are still worry about the Japan’s economy and therefore become more cautious about spending. The rise in winter bonuses at many companies did not release the concerns about future and many consumers decided to save instead of spending them. Although some people were benefit from the recovery in stock market, it still did have an obvious effect because only 8.5% of Japanese households’ assets are in stock. Moreover, the increase in sales tax from 5% to 8% could be a factor that discourages consumption. Since the cost of goods would be higher, we might expect a further decrease in the consumption in the long term. In fact, the sales tax not only effect consumers but also place more burden on companies. Some companies have already declared their plans on cutting down the production due to increasing sales tax.

Therefore, we can see that Japan’s economy is facing the challenges from both export and domestic consumption. The consumers might not gain confidence about the economy unless the government could take effective measures to increase the performance of export.

2 thoughts on “The Current Challenges for Japan’s Economy

  1. umbrown@umich.edu'umbrown

    I like that you pointed out that Japanese companies outsourcing their factories and manufacturing is a problem for them in terms of growth. I think that too often, Americans (particularly politicians) are focused on the negatives of outsourcing from our perspective but no one really considers that it isn’t a uniquely American problem.

  2. jyyoo

    Japanese companies are producing outside Japan to cut down the cost…but it can be harmful for its domestic economy. Government should think about lowering regulations for these big companies to stimulate economy.

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