Japan’s economic recovery to help offset trade tension

Source:Global Times Published: 2018/10/8 22:23:40

Illustration: Luo Xuan/GT

There are increasing signs that Japan's economy is gradually recovering from its longstanding weakness, which could be a sea change for a country that has suffered "two lost decades."

From 2012-17, Japan's economy remained on a moderate growth path. This period included eight consecutive quarters of expansion, the longest stretch of growth in 28 years. Despite a mild contraction in the first quarter of 2018, the economy quickly recovered to expand 1.9 percent year-on-year in the second quarter, thanks mainly to improved business investment and private consumption, as well as stable overseas demand.

Moreover, land prices in Japan recorded their first rise since the bubble burst in the 1990s. According to a survey by the Land, Infrastructure, Transport and Tourism Ministry, the country's average land price edged up 0.1 percent this year, the first increase in 27 years.

According to a report from investment bank Morgan Stanley, with the increase in capital investment, the rising labor force participation rate and more skilled immigrants, Japan's nominal GDP growth is expected to further accelerate. The bank forecast it would reach an average of 2.2 percent from 2021-2025.

The nation's accumulated technological innovation capability is also an important foundation for Japan's economic recovery. Even during the long economic downturn, the country's capability to innovate still improved, with substantial progress made in fundamental research.

From 2000-2016, there were 17 Japanese winners of the Nobel prize for science. Japan is also a net exporter of advanced technology. In 2016, Japan recorded a trade surplus of nearly $20 billion in intellectual property royalties, while China registered a $22.8 billion deficit in the same area.

Evidently, Japan's long-term spending on science and technology has translated into improvements in economic performance and production efficiency.

Japan's continued moderate recovery has also benefited from the expansionary policy known as Abenomics. With Shinzo Abe set to be the longest-serving prime minister in Japan's history, his long-time tenure guarantees that Abenomics, which aims to lift the economy out of recession, will continue to play its role.

Abenomics is showing positive effects. Aggressive monetary policies such as negative interest rates and quantitative easing have helped the country end years of deflation, while technology and labor policies are gradually alleviating its aging problem, to the benefit of long-term economic development. Nevertheless, it will be difficult for the country to achieve its inflation target by 2019, indicating that it still has a long way to go on its recovery journey.

There are also some negative factors facing Japan's economy. Against the backdrop of the US Federal Reserve's rate hikes, it seems uncertain whether Japan can maintain its expansionary monetary policy.

Some analysts believe that Japan's central bank may change its monetary stance to allow certain interest rate rises, so as to cope with the pressure of the long-term interest rate increase trend in the US. Meanwhile, the debt problem arising from quantitative easing has squeezed the space for development in the long run, with debt equivalent to 240 percent of GDP. Prospects for debt reduction are unclear.

What's more worrying is that as the population declines, the per capita debt level continues to go up. It seems that instead of embarking on a fast-growth track, Japan's economy is more likely to show a moderate recovery for a relatively long period.

The recovery in Japan, the third-largest economy in the world, has also had an important impact on China. In particular, against the background of the intensifying trade dispute with the US, there are opportunities for China and Japan to strengthen economic and trade cooperation. It has already been noted that bilateral economic and trade relations have warmed up remarkably this year.

In the first quarter, bilateral trade totaled $76.4 billion, with Japanese exports to China reaching $34.05 billion, up 14.2 percent year-on-year. It is expected that the two countries may witness a fifth upsurge in economic and trade exchanges similar to those in 1980, 1992, 2001 and 2008.

With the world under the shadow of a trade war, the recovery of Japan's economy is no trivial matter, and it also has special significance for China. Japan's economic recovery matters to the global economy, the regional economy and the Chinese economy. This rebound can not only help maintain economic stability in the Asia-Pacific region, but it can also offset the losses caused by the Sino-US trade war through bilateral and multilateral economic and trade cooperation.

This article was compiled based on a report by Beijing-based private strategic think tank Anbound. bizopinion@globaltimes.com.cn

Posted in: INSIDER'S EYE

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