Japane needs an effective budget consolidation plan

11 february 2019

Low inflation, a large public debt and a number of demographic problems are the key obstacles holding back economic growth in Japan. What's going to be its growth driver? That's the question Analytical Center experts tried to tackle in the new bulletin on the current trends in the global economy.

For almost 3 decades now Japan's been going through economic difficulties with international organizations projecting weak growth in the medium term, the experts explain.

Japan's high tech industries are fast losing their competitive advantage as such players as the Republic of Korea and China are going from strength to strength. The foundation of the country's economy, the processing sector, is controlled by major companies with a long history, which, however, have failed to successfully adapt to global technological change, the analysts believe. Japan is still highly dependent on imports of groceries and energy resources. Even as energy consumption is decreasing, the shutting down of nuclear capacity has made Japan highly dependent on fuel imports.

Japan's economic growth until the 2000s was fuelled by exports, however, as demand for Japanese goods outside the country declined, Japanese companies had to look for sources of growth domestically. A boost to personal consumption could serve as such a source of growth, the experts believe. However, the current macroeconomic policy continues, personal consumption could only increase if employee pay was increased substantially and that would put additional strain on business. On the other hand, employee pay growth can prompt people to save more rather than to consume more, a tendency that is very common in Asian economies, the experts point out.

To minimize the negative impact of the current demographic changes and reduce the risks of large public debt, the country needs to come up with a plan to effectively consolidate its budget in the medium and long term, the analysts believe.

For more see the bulletin Japan: in Search of New Growth Drivers.

For other bulletins on the current trends in the global economy see Publications.