By DANIEL MOSS
Japan has served its time as a symbol of economic failure. Its latest growth surge puts it in a welcome new role.
The country’s demographics, according to conventional wisdom, are sup- posed to be bad for the economy. Instead, Japan unexpectedly shot to the top of Group of Seven club, with its gross domestic product (GDP) notching 4% annual growth last quarter. That easily outpaced the 2.6% recorded in the US during the same period.
The biggest gains were in consumption and business spending, both essential ingredients in sustaining the nation’s expansion. The world’s third-largest economy, Japan could be in even better shape if Prime Minister Shinzo Abe could overcome ancient tradition and political opposition by welcoming large-scale immigration.
To get a sense of the potential of a larger population, take a look at the consumption figures. The GDP jump happened despite anaemic increases in wages at the biggest employers, and despite the central bank’s continuing struggle to fully escape decades of either very low inflation or deflation.
The increase in spending also defies demographic destiny. Japan’s population is ageing and shrinking, having peaked in 2009. The prime working-age population, people ages 15 to 64, peaked more than a decade earlier and is down about 13% since then.
As I wrote earlier this month during a visit to Tokyo, something is going on that headline statistics don’t quite capture. Those same demographic challenges may soon start to overtly work in the economy’s favour. With unemployment down to 2.8%, companies are starting to recognise the need to lock in staff before the hiring pool disappears.
And this means paying them more. It’s starting to happen slowly, and aggregate wage numbers — gains of only about 0.6% — obscure the dynamic among part-time workers and small businesses. Pay rises at the former vastly outstrip what’s going on at big companies, admittedly from a lower base.
Employers have known this crunch was coming for a while. This week’s GDP report suggests that it may have arrived. As Kathy Matsui, vice chair and chief Japan equity strategist at Goldman Sachs Group Inc, told Bloomberg Television, domestic spending of the kind reported today couldn’t have happened without some wage growth.
It’s not that Japan is the new boom-town. The growth seen last quarter may well be revised lower, and the past few decades have seen a few false dawns. The string of GDP increases, while it may tie for the longest since 2006, is only six quarters old.
A potential increase in consumption tax could set the economy back, as it did a few years ago.
Regardless, the nation is no longer a poster child for economic failure. The International Monetary Fund (IMF) acknowledged as much when it updated its global forecasts last month. The IMF said the global expansion is broadening beyond the US, with China, Europe and Japan carrying more of the load.
The country’s demographic challenges are still huge. Ultimately, it needs to either embrace large-scale immigration as a solution to labour shortages or make greater use of robots. While immigrants are filling some low-end jobs, there’s very little political support for allowing much more. And to be fair to Abe, opposition to immigration long preceded his premiership.
Robots and expanded artificial intelligence seem to be vastly more favoured. That’s a pity. Imagine how much more vigour the current Japanese recovery would have if only there were more people around to buy more stuff. — Bloomberg
- This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.