A major policy imperative of the Japanese government is to stimulate domestic economic demand and put an end to the years of deflation that have dogged the Japanese economy. Deflationary pressures dampen domestic demand since consumers know that the price of an item is likely to be lower in the future and therefore delay purchases for as long as possible to benefit from cheaper prices down the line. Against this backdrop, employers are reluctant to increase wages which restricts the supply of cash in the economy to fuel demand, creating a vicious circle. The Bank of Japan is seeking to drive inflation in the Japanese economy up to 2% which is in line with the target inflation level in most major economies.
The government’s policies have encouraged the Bank of Japan to strengthen its accommodative monetary policy and as a consequence the Yen has fallen in value significantly against other major currencies over the past year. This had started to feed through into greater demand for Japanese exports which should boost growth in the economy; however, data just released shows a blip in this progress.
Japan’s industrial output dipped by 3.3% in June against the May figure, representing a year-on-year decline of 4.8%. Equally, household spending slipped by 0.4% over the June 2012 figure, disappointing analysts who had expected to see growth of about 1%. The view seems to be that the data marks an aberration rather than the start of a trend and that projections for manufacturing in July look strong. Time will tell. However, the data does highlight the problems facing PM Shinzo Abe as he tries reform the world’s third largest economy.
Japan’s Economy Hits Bump In Road
Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.