New driving force for Japanese economy

Japan’s House of Representatives has just approved a draft budget of 112.57 trillion yen (750 billion USD) for the next fiscal year, starting in April 2024, to stabilise social security and promote economic growth. This budget package is expected to create new development momentum in the context that the Japanese economy is showing positive signs.

According to Japanese media, the House of Representatives, led by the ruling coalition of Prime Minister Kishida’s Liberal Democratic Party (LDP) and Komeito, passed the above budget bill after discussions at the Budget Committee.

As required by the Constitution, the budget is enacted 30 days after approval by the House of Representatives, and the enactment of the fiscal 2024 budget is now certain. The recent budget package presented to the House of Representatives is Japan’s second-largest budget ever, only lower than the 114,380 billion yen budget presented in fiscal year 2023.

The goal of this budget is to “energise” economic and social development in many aspects, including helping households cope with inflation and supporting recovery efforts in areas affected by the New Year’s Day earthquake, in addition to subsidising companies to increase wages for workers.

Analysts expect that the approval of the draft budget will become a timely booster to revive the Japanese economy in the context of additional positive economic signals.

On March 1, the Japanese Government statistics said that the unemployment rate fell to 2.4% in January, from 2.5% in the previous month, the first improvement in three months, due to fewer people being laid off amid labour shortages.

According to economists, the improvement in the unemployment rate in Japan is due to the reduction in the number of people leaving their jobs involuntarily due to company bankruptcy or restructuring.

According to the Ministry of Health, Labour and Welfare, among the sectors that increased employment in January, services related to quality of life and entertainment went up by 5.7% and information and communication rose by 4.5%.

Although the economy is recovering and the job market sees a bright spot, the challenges for the Japanese economy are still huge.

The latest statistics from the Japanese Government show that the country’s gross domestic product (GDP) in 2023 reached 4,210 billion USD, lower than Germany’s 4,460 billion USD.

Accordingly, Japan officially lost its position as the third-largest economy in the world. In the fourth quarter of 2023 alone, Japan’s GDP decreased by 0.4%. This number is not only lower than expected but also sets a record for two consecutive quarters of negative growth, causing the country’s economy to dip into a technical recession.

Analysts say there are two main reasons for the Japanese economy’s losing its spot.

First, the yen’s continuous depreciation in 2023 eroded export profits. According to statistics, the yen decreased by 20% in value, compared to the USD in 2022 and 2023, while the euro rose by 3.7%, helping Germany’s GDP surpass Japan’s.

Second, Japan continues to face long-term difficulties, including population ageing, low birth rate and high inflation, causing declining consumption. Personal consumption, which accounts for more than half of economic activity in Japan, fell 0.2% in the fourth quarter of 2023.

Meanwhile, large Japanese enterprises such as Panasonic, Toshiba, Hitachi and Mitsubishi, which once grew explosively in the past few decades, are now increasingly lacking vitality and the ability to innovate, making the economy sink deeper into stagnation.

Some experts believe that Japan’s loss of its position as the world’s third-largest economy to Germany could be a strong blow to Japan, as well as to Prime Minister Fumio Kishida, which will “awaken forgotten economic reforms”, to bring the Japanese economy into a new growth cycle.

It is hoped that the huge budget package passed by the Japanese House of Representatives last weekend will be the beginning of important reforms to create new momentum for the Japanese economy to become strong again.

NDO