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Japan Economy

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After the return of independence in 1952, the Japan economy started changing and growing. Sustained economic growth was also fueled by Japan’s young and well-educated workforce, capital from high domestic savings rate, and guidance, support, and subsidies from an activist government and bureaucracy.

Following the second world war, new factories grew that used the latest technologies, becoming more efficient than foreign competition. From the 1960s onwards, the Japanese economy shifted its focus to high-quality and high-technology products aimed at both domestic and foreign consumption. The nation eventually became a global leader in several industries, including electronics, automobiles, shipbuilding, steel, and high technology. 

After fighting deflation for more than two decades, former Prime Minister Shinzo Abe launched a three-pronged approach to revitalize the economy in 2013, called “Abenomics”. This refers to a set of fiscal and monetary policies that combined fiscal stimulus, monetary easing, and structural reform.

After Abe’s resignation in September 2020, first Yoshihide Suga was elected to succeed Abe, then in November 2021 Fumio Kishida followed as Japan’s 100th Prime Mininister. Kishida vowed to revamp the Abenomics programme.

The coronavirus pandemic severely affected the world’s third largest economy, that was already stagnating. The 2020 real Gross domestic product (GDP) for Japan was at -4.6%, the first recorded decline over a decade. In 2021, the economy could recover and expanded by 1.7% in real terms, government data showed.

In 2022, despite the lifting of Covid curbs the world’s third-largest economy was struggling. However, Japan still recorded 1.1% GDP-growth that year. The moderate growth continues, with the IMF predicting 2.0% growth for 2023 and 1.0% growth in 2024.

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Japan GDP Annual Growth Rate (in %)

 

Currency and Central Bank 

Japanese yen, the official currency of the nation, is the third most traded currency in the foreign exchange market behind the US dollar and the Euro. 

The Bank of Japan (BOJ), also referred to as Nichigin, is the central bank of Japan and is responsible for the country’s monetary policy, issuance and management of banknotes, and providing stability to the country’s financial system. 


Japan Economy: Inflation (in %)

Japan has one of the lowest inflation rates worldwide. But the times have changed, and inflation is also picking up in Japan. After an inflation rate of 2.5% in 2022, the IMF predicts an inflation rate of 3.2% in Japan for 2023 and 2.9% in 2024.

Rising inflation is putting increasing pressure on the BOJ, which is pursuing an unusually loose monetary policy by international standards. This has severely weakened the yen, which further fuels inflation through more expensive imports.

The government has released several stimulus packages over the past two years to boost the economy. One of which was released in November 2023, a package worth 13.1 tn yen ($113 bn). The plan involves substantial income and residential tax cuts, of about 3.5 tn yen ($23.22 bn). Additionally, the government will earmark over 1.0 tn yen ($6.63 bn) to boost low-income households, aiming to stimulate overall consumption. 

Industry and Trade 

Japan’s biggest sector is service, which comprises about 70% of the nation’s GDP. The major service industries in the country include banking, real estate, retailing, insurance, telecoms, and transportation. Several Japanese service firms are among the largest companies in the world, such as Softbank, Nomura, Mitsubishi Estate, ÆON, and Japan Airlines.

Industry is making up about 29% of Japan’s GDP. Due to its high technological development, Japan is considered a leading manufacturer of consumer electronics, automobiles, optical media, and semiconductors.

The government has furthermore established the Digital Agency in 2021 to speed up digitalization of the public sector and also introduced tax incentives to encourage private sector digitalization.

In terms of total exports, the Japan economy ranked fifth globally in 2022. Its top export products are transport equipment (motor vehicles and parts), machinery, electrical machinery and manufactured goods. The country’s main export partners are the US and China. 


Japan Balance of Trade

 

Meanwhile, Japan is the third-largest importer in the world, with mineral fuels (e.g. coal and LNG), electrical machinery, chemicals as its main import products. The country’s three biggest import countries are China, Australia and the US.

Stock Exchanges and Capital Markets 

The Tokyo Stock Exchange (TSE), part of Japan Exchange Group, is the second-largest stock exchange in Asia. TSE is the fifth-largest stock exchange in the world, listing more than 3,920 companies as of Movember 2023, with a combined market capitalization of $6.16 tn. 

The top five companies listed on the TSE in terms of market capitalization are automobile manufacturer Toyota Motor Corporation, consumer electronics conglomerate Sony Corporation, automation equipment manufacturer Keyence Corporation, financing group MUFG Inc., and Nippon Telegraph & Telephone.

The Nikkei 225 or the Nikkei Stock Average is a price-weighted index, commonly used for the TSE, along with the Tokyo Stock Price Index or TOPIX. 

Bond Market 

As of September 2023, the Japanese government bond issuance stood at 1275.6 tn yen ($8.98 tn).

The Bank of Japan (BOJ) is the greatest driver in the Japanese bond market. In July 2023, the central bank’s share in government bond climbed to 55.43% from 11,55% in 2013.

In October 2023, The Bank of Japan announced that it would conduct an unscheduled and unspecified amount of additional purchases of Japanese government bonds with duration of five years and above and up to 10 years.

However, despite the volatility seen in the yen, foreign holdings in Japan’s local currency government bonds have remained fairly stable, with foreigners holding 13.64% of the total government bonds as of the quarter that ended in June 2022.

The S&P Japan Bond Index, which tracks the performance of local-currency government and corporate bonds, has fallen by over 4% in 2022, but risen 0.26% year-to-date (15 December 2023).

Real Estate Market 

Japan’s real estate investment market ranks second globally in terms of market size, after the US. As per 2022-23 report by MSCI Real Estate Market Size Report, Japan’s market size stood at $887 bn.

In terms of real estate transactions, there are no differences in system application between domestic and overseas investors.

Foreigners and foreign companies can own real estate in Japan, purchase real estate without restrictions regardless of real estate type, and trade real estate without public notice of transactions. 

 

Japan Housing Index (in %)

 

Source of charts: tradingeconomics.com

Key Growth Indicators

2024 Projected real GDP (% Change): 1.0
2024 Projected Consumer Prices (% Change): 2.9
Country Population: 124.621 million
IMF, as of October 2023

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