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Japan Experiences Economic Growth As Coronavirus Fears Depletes

Japan Experiences Economic Growth As Coronavirus Fears Depletes

Japan Experiences Economic Growth As Coronavirus Fears Depletes

Japan Experiences Economic Growth As Coronavirus Fears Depletes

Consumption of goods and services increased as a result of a public weary of virus precautions, but the long-term outlook is questionable given the weakening of the global economy.

The restaurants are packed. The malls are packed. People are moving about. And as consumers began to abandon the measures that had kept coronavirus infections among the lowest of any developed nation after more than two years of the pandemic, Japan’s economy started to expand once more.

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Japan’s economy continued to grow in the second half of the year despite Chinese lockdowns, skyrocketing inflation, and exorbitant energy costs. Domestic consumption of products and services increased dramatically. According to government figures released on Monday, the nation’s economy, which is the third largest behind that of the United States and China, expanded at an annualized pace of 2.2 per cent over that time.

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The second-quarter result came after the first three months of the year, when consumers withdrew to their homes due to the rapid spread of the Omicron variety, saw growth of 0% (reduced from an early reading of a 1% decline).

Japan Experiences Economic Growth As Coronavirus Fears Depletes

Once the initial Omicron wave had passed, shoppers and domestic travellers flooded the streets once more. The number of cases then spiked back up to record highs for Japan, but this time the heavily immunized and the weary public has responded less anxiously, according to Izumi Duvalier, head of Japan economics at Bank of America.

We experienced a significant increase in mobility following the conclusion of the Omicron wave, as well as significant catch-up expenditure in the restaurant and travel sectors, she added.

The latest growth report suggests that after more than two years of yo-yoing between expansion and contraction, Japan’s economy may finally be back on track. Ms. Devalier added that consumers, particularly elderly people, “are extremely sensitive to Covid dangers,” adding that the country still “lags” economically behind other developed countries.

She stated that “we have had this really gradual recovery and normalization from Covid” as that sensitivity has gradually decreased over time.

Strong headwinds, notably for Japan’s small- and medium-sized firms, prevented the second quarter’s growth from happening.

Japan Experiences Economic Growth As Coronavirus Fears Depletes

 

China’s Covid lockdowns have made it hard for retailers to stock in-demand products like air-conditioners, and for manufacturers to procure some critical components for their goods.

A weak yen and higher inflation have also weighed on companies. Over the last year, the Japanese currency has lost more than 20 percent of its value against the dollar. While that has been good for exporters — whose products have grown cheaper for foreign customers — it has driven up prices of imports, which have already become more expensive because of shortages and supply chain disruptions caused by the pandemic and Russia’s war in Ukraine.

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While inflation in Japan — at around 2 percent in June — is still much lower than in many other countries, it has forced some companies to substantially raise prices for the first time in years, potentially dampening demand from consumers accustomed to paying the same amounts year after year.

The gradual return to normal economic activity produced strong growth in private investment, Monday’s data showed.

The growth was driven in part by spending to improve companies’ sustainability and digital infrastructure — efforts strongly promoted by government policies, said Wakaba Kobayashi, an economist at the Daiwa Institute of Research.

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Japan Experiences Economic Growth As Coronavirus Fears Depletes

Still, it is not clear how long that growth can continue, she said. Among many businesses, “there is a sense that the global economy is going to continue to decelerate,” she said. The economies of the United States, China and Europe have slowed more rapidly than expected in recent months because of the Ukraine war, inflation and the pandemic.

Japan faces other challenges both at home and abroad. Small- and medium-size enterprises in particular are likely to struggle as pandemic subsidies come to an end and foot traffic to their businesses remains below prepandemic levels.

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Additionally, geopolitical tensions are creating greater uncertainty for Japan’s key industries. Frictions between the United States and China over Speaker Nancy Pelosi’s visit to Taiwan this month have raised concerns among Japanese policymakers about possible disruptions to trade. Taiwan is Japan’s fourth-largest trade partner and a critical producer of semiconductors — essential components for Japan’s large automobile and electronics industries.

As for Japan’s overall economic outlook, “short term, momentum is pretty good, but beyond that, we are actually quite cautious,” Ms. Devalier said.

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At home, she expects consumption to slow as people adjust to the new normal of living with the pandemic and their enthusiasm for spending dims. Wage growth, which has been stagnant for years, is falling behind inflation, which is likely to affect spending. And, she said, “for manufacturing and exports we expect a slowdown in momentum reflecting the fact that we expect global growth to be weaker.”

Japan Experiences Economic Growth As Coronavirus Fears Depletes

It will still take some time for Japan’s economic activity to return to normal despite some encouraging signals, according to Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ.

The economy has almost fully recovered from the pandemic to its pre-pandemic size. However, even at that time, it was poor due to a decline in expenditure caused by an increase in Japan’s consumption tax.

“There is still ample reason for concern,” Mr. Kobayashi said, citing inflation and the continuing pandemic. “The situation is not so bad that we see growth stalling out, but we also can’t say things will go well.”

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I Am a financial analyst, Entrepreneur, Blogger and Business model. With 15 years' Consultancy Experience.

IBEH C. JOE

I Am a financial analyst, Entrepreneur, Blogger and Business model. With 15 years' Consultancy Experience.

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