Japan’s sluggish economy and the Yen

For decades the Japanese Yen has been seen as a ‘safe-haven’ currency. Japan and its economy are world-leading, regularly appearing in the top three on lists of economic strength indicators (after China and the US.)

However, for the last few years, even before Covid, the Japanese economy and its currency have stagnated.

This year, the Yen has reached new currency lows not seen in decades.  Various figures compiled in recent months show stagnation or in some cases (like productivity figures) a slow decline.

Many economists are expecting India to overtake Japan as the world’s third-largest economy by the end of the decade.

It has therefore left people wondering, what exactly is going on in Japan today?

(Japan had multiple states of emergency in 2020 and 2021)

COVID-19: four successive states of emergency

Compared to a similar size country like Italy, Japan has had a fraction of the cases of Covid-19. 7.4 million vs 1.7 million respectively.

Despite this, they have had some of the world’s toughest measures.

The Japanese border has been effectively closed since the pandemic began and for long periods, travel between prefectures has been restricted and places like restaurants closed.

With a heavily service-based economy and cities like Tokyo being reliant on office workers, the restrictions have taken a toll on the economic health of the country.

For many years now, the Japanese economy has been held together with various levels of state support and intervention, this meant that when Covid came, as one commentator put it, the government had little left in its arsenal to combat the harsh economic impact the pandemic brought in its wake.

A contested Olympic legacy

Some of the most memorable scenes from the Tokyo 2020 games (which took place in 2021) were the empty stadiums that greeted the world’s elite athletes, a PR nightmare for Japan PLC.

The postponed Olympics were a financial loss for the country, with $800 million lost in ticket sales alone and untold billions lost in the wider supporting economy.

Opinion polls show that ordinary Japanese people were unsupportive of the games and thought they shouldn’t have been held.

Normally this wouldn’t have been so pronounced but the over $15billion cost of the Olympics added onto the cost of all the Covid-19 support measures has left a bittersweet legacy for what was supposed to be Japan’s opportunity to shine in the global spotlight.

(The Olympic Rings displayed in Tokyo Bay)
(Rush hour in Tokyo)

Stagnant wages and low productivity

Japan has faced over a decade of stagnant wages. Many new jobs created have been part-time creating a difficult domestic spending situation.

The impact of this can be seen in falling productivity which in some measures seems to have dropped to an all time low.

It can also be seen in the lack of consumer confidence and levels of spending. Japanese consumers are saving rather than spending in the current economic climate.

Another interesting point, less often made, is that in many ways Japan is facing a domestic labour shortage. Its ageing population means more younger people are needed in the workforce, however, there simply aren’t enough young people to fill all the jobs vacated by retiring Japanese citizens.

From waitresses to care workers, Japan needs an injection of immigrant workers to fill many of these roles, yet its tough work permit regulations mean many of these roles are going unfilled.

Imports, exports and the Yen

Japan is world-famous for its technological innovations and cutting edge products, exporting them around the world. A weak Yen makes for a great export market. However, on the other side, the cost of production has dramatically increased over recent years.

Everything from the price of oil to the supply of microchips has impacted Japanese business, massively pushing up production costs and thus offsetting any potential gains.

Right now Japanese products may be able to compete abroad, but the cost of producing them means inevitably they are becoming more expensive.

(Japan is a huge exporter)
(Dawn in Tokyo)

Not all doom and gloom in the land of the rising sun

Recent polls have suggested that over 80% of Japanese businesses are optimistic, expecting to see growth and a way out of the economic chaos of the pandemic.

A new Government with a new team recently took charge in the country, espousing a ‘New Capitalism’ which could pay dividends for the people, shaking up the way things are done.

Japan has frequently overcome economic crises and managed to re-invent itself when times are tough.

It may have been going through a rough patch recently however nobody seriously expects it to lose its ‘safe-haven’ status permanently.

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