Japanese media, including Kyodo News, reported on the 3rd that the Japanese government has begun considering officially declaring an “escape from deflation (falling prices amid an economic recession)” for the first time in 23 years. This means that we have escaped from the ‘chronic economic recession’ tunnel that entered the 2000s after the collapse of the bubble economy in the 1990s.
Although some point out that the real economy as felt by the common people is still at its lowest, many say that we have reached a turning point to escape the ‘lost 30 years’.
Japan, which first acknowledged that it had entered deflation in 2001, has implemented large-scale financial easing policies, including negative interest rates, for over 10 years, but has not yet completely escaped it. Many economists point out that deflation, which leads to ‘consumption slump → business deterioration → wage decline → economic recession’, is a vicious cycle more terrible than inflation.
The Japanese government plans to decide whether to declare an escape from deflation after observing the results of the Spring Struggle, a wage negotiation held by large corporations in the spring, and the price outlook. Options such as announcing it at a press conference by Prime Minister Fumio Kishida and cabinet members or listing it in a monthly economic report summarizing economic trends are being discussed.
The groundwork for declaring an escape from deflation has already begun. Kazuo Ueda, Governor of the Bank of Japan, the central bank of Japan, said at the National Assembly on the 22nd of last month about the recent price trend, “We are in a state of inflation, not deflation.”
As Governor Ueda said, Japan’s economic indicators are at a level that can be considered inflation. Keidanren, Japan’s largest economic organization, set this year’s wage increase target to exceed 4%, the highest since 1992. Japan’s largest hypermarket ‘Aeon Mall’ increased wages for regular workers by 7% this year. The consumer price index rose by 3.1% last year, following Japan’s 2.3% annual increase in 2022 (excluding fresh food, compared to the previous year).
The Nikkei Stock Average, Japan’s representative stock index, has been breaking its highest record in 34 years day after day, closing at 39,910 yen on the day, and is on the verge of exceeding 40,000 yen for the first time in history. There are high expectations that the country is finally escaping from the ‘lost 30 years’ as the ‘Japan Rally’ continues due to the prolonged low yen, strengthening export competitiveness based on technology, improvement of shareholder-friendly corporate governance, and the ex-China phenomenon.
Some point out that Prime Minister Kishida is strategically declaring an escape from deflation in order to raise his approval rating based on the performance of his economic policies. Kyodo News reported, “There are many voices within the government calling for caution in acknowledging an escape from deflation at an early stage.” The fact that the economy slumped immediately after the Bank of Japan began raising interest rates in the 2000s and repeatedly failed to escape deflation remains a lesson learned.
There are also doubts about whether the recent economic upturn is a fundamental recovery of economic strength. Last year, Japan fell behind Germany in terms of economic size measured by gross domestic product (GDP), falling to fourth place in the world. Although the desired ‘price-wage increase’ has been achieved to some extent through financial easing and the government’s encouragement of wage increases, Japan’s potential growth rate is still low due to population decline and sluggish labor productivity.
Yoshitaka Shindo, Minister of Economic Regeneration of Japan, said, “Wages cannot keep up with the rise in prices and the power of individual consumption is insufficient,” and “We must create a foundation for growth through structural reform as soon as possible.”
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.