Viewing offline content

Limited functionality available

Dismiss
Deloitte Middle East
Annotations
  • Services

    What's New

    • Deloitte175

      Join us for a celebration of 175 years of making an impact that matters.

    • Building the Resilient Organization

      2021 Deloitte Global resilience report

    • 2020 Global Gender Impact Report

      A collection of Butterfly Effect stories highlighting how our Deloitte professionals are positively impacting the lives of women and girls around the world

    • Audit & Assurance

      • Assurance
    • Consulting

      • Strategy, Analytics and M&A
      • Customer and Marketing
      • Business Operations
      • Human Capital
      • Enterprise Technology & Performance
    • Financial Advisory

      • Mergers & Acquisitions
      • Forensic
      • Real Estate
      • Turnaround & Restructuring
    • Risk Advisory

      • Strategic & Reputation Risk
      • Regulatory Risk
      • Financial Risk
      • Operational Risk
      • Cyber Risk
    • Tax

      • Global Business Tax Services
      • Indirect Tax
      • Global Employer Services
    • Deloitte Private

      • Family Enterprise
    • Legal

    • Sustainability

  • Industries

    What's New

    • Deloitte perspectives

      Leadership perspectives from across the globe.

    • Deloitte Insights App

      Our thought leadership and Dow Jones news, now at your fingertips

    • Future of Mobility

      Learn how this new reality is coming together and what it will mean for you and your industry.

    • Consumer

      • Automotive
      • Consumer Products
      • Retail, Wholesale & Distribution
      • Transportation, Hospitality & Services
    • Energy, Resources & Industrials

      • Industrial Products & Construction
      • Mining & Metals
      • Oil, Gas & Chemicals
      • Power, Utilities & Renewables
    • Financial Services

      • Banking & Capital Markets
      • Insurance
      • Investment Management
      • Real Estate
    • Government & Public Services

      • Civil Government
      • Defense, Security & Justice
      • Health & Social Care
      • Transport
    • Life Sciences & Health Care

      • Health Care
      • Life Sciences
    • MENA Sovereign Wealth Funds

    • Technology, Media & Telecommunications

      • Technology
      • Telecommunications, Media & Entertainment
  • Insights

    Deloitte Insights

    What's New

    • Deloitte Insights Magazine

      Explore the latest issue now

    • Deloitte Insights app

      Go straight to smart with daily updates on your mobile device

    • Weekly economic update

      See what's happening this week and the impact on your business

    • Strategy

      • Business Strategy & Growth
      • Digital Transformation
      • Governance & Board
      • Innovation
      • Marketing & Sales
      • Private Enterprise
    • Economy & Society

      • Economy
      • Environmental, Social, & Governance
      • Health Equity
      • Trust
      • Mobility
    • Organization

      • Operations
      • Finance & Tax
      • Risk & Regulation
      • Supply Chain
      • Smart Manufacturing
    • People

      • Leadership
      • Talent & Work
      • Diversity, Equity, & Inclusion
    • Technology

      • Data & Analytics
      • Emerging Technologies
      • Technology Management
    • Industries

      • Consumer
      • Energy, Resources, & Industrials
      • Financial Services
      • Government & Public Services
      • Life Sciences & Health Care
      • Technology, Media, & Telecommunications
    • Spotlight

      • Deloitte Insights Magazine
      • Press Room Podcasts
      • Weekly Economic Update
      • COVID-19
      • Resilience
  • Careers

    What's New

    • Millennial Survey 2022

      Gen Zs and millennials are striving for balance and advocating for change.

    • Candidate Profile

      After applying for a job in this country, you can access/update your candidate profile at any time.

    • Job Search

    • Students

    • Experienced Hires

    • Executives

    • Life at Deloitte

    • Alumni

    • Diversity and Inclusion

  • XE-EN Location: XE-English  
  • Contact us
  • XE-EN Location: XE-English  
  • Contact us
    • Dashboard
    • Saved items
    • Content feed
    • Profile/Interests
    • Account settings

Welcome back

Still not a member? Join My Deloitte

Japan

by Ira Kalish
  • Save for later
  • Download
  • Share
    • Share on Facebook
    • Share on Twitter
    • Share on Linkedin
    • Share by email
Deloitte Insights
  • Strategy
    Strategy
    Strategy
    • Business Strategy & Growth
    • Digital Transformation
    • Governance & Board
    • Innovation
    • Marketing & Sales
    • Private Enterprise
  • Economy & Society
    Economy & Society
    Economy & Society
    • Economy
    • Environmental, Social, & Governance
    • Health Equity
    • Trust
    • Mobility
  • Organization
    Organization
    Organization
    • Operations
    • Finance & Tax
    • Risk & Regulation
    • Supply Chain
    • Smart Manufacturing
  • People
    People
    People
    • Leadership
    • Talent & Work
    • Diversity, Equity, & Inclusion
  • Technology
    Technology
    Technology
    • Data & Analytics
    • Emerging Technologies
    • Technology Management
  • Industries
    Industries
    Industries
    • Consumer
    • Energy, Resources, & Industrials
    • Financial Services
    • Government & Public Services
    • Life Sciences & Health Care
    • Tech, Media, & Telecom
  • Spotlight
    Spotlight
    Spotlight
    • Deloitte Insights Magazine
    • Press Room Podcasts
    • Weekly Economic Update
    • COVID-19
    • Resilience
    • XE-EN Location: XE-English  
    • Contact us
      • Dashboard
      • Saved items
      • Content feed
      • Profile/Interests
      • Account settings
    4 minute read 26 July 2019

    Japan The economy has rebounded but obstacles remain

    4 minute read 26 July 2019
    • Ira Kalish United States
    • Ira Kalish United States
    • Save for later
    • Download
    • Share
      • Share on Facebook
      • Share on Twitter
      • Share on Linkedin
      • Share by email
    • The latest indicators
    • Factors that will influence Japan’s future path

    ​Japan’s economy rebounded in the first quarter, despite external headwinds, especially the trade war and its effects. Domestic dynamics, such as sagging spending and monetary policy, remain an overhang.

    The latest indicators

    Japan’s economy surprised by performing relatively well in the first quarter of this year.1 Specifically, real GDP grew from the previous quarter at an annualized rate of 2.1 percent, after posting 1.6 percent growth in the last quarter of 2018. The economy had contracted in the first and third quarters of 2018. In Q1 of 2019, growth was driven by strong gains in public sector investment as well as housing. However, consumer spending fell slightly, down 0.3 percent, business investment fell modestly, and both exports and imports fell sharply. The decline in imports, however, had a positive impact on GDP. Still, declining imports are a reflection of weak domestic demand. The fact that GDP mainly grew due to a strong increase in public sector investment suggests that the private sector remains quite weak. The decline in trade volumes suggests that the on-again, off-again trade war between the United States and China is taking a toll on the Japanese economy. The boost in public sector spending also indicates that the government has loosened fiscal policy, especially due to increased spending on disaster relief. The government remains intent on raising the national sales tax later this year to improve the solvency of the public pension system. This is expected to have a big, negative impact on consumer spending, as was the case the last time the tax was increased.

    Learn more

    Subscribe to receive more from Deloitte Insights

    Download the Deloitte Insights and Dow Jones app

    Although Japan’s economy rebounded in the first quarter, signs of trouble continued as the second quarter unfolded. Japanese exports declined for the fifth consecutive month in April, falling 2.4 percent from a year earlier.2 The decline was disproportionately driven by a drop in exports of chip-making equipment to China, likely a result of the growing trade war between the United States and China. Indeed, Japanese exports to China were down 6.3 percent in April versus a year earlier. Specifically, exports to South Korea fell 4.2 percent, but exports to the United States were up 9.6 percent and to Vietnam 10.4 percent.

    As for Japan’s manufacturing sector, the Purchasing Managers’ Index from IHS Markit fell to 49.3 in June, indicating continued declining activity.3 The index was weak because of softness in several subindices, such as output, new orders, export orders, and employment. This, in turn, stemmed from weak overseas demand, especially from China, as well as overall weakness in the global automotive sector.

    As for Japan’s household sector, spending increased 4.0 percent in May versus a year earlier.4 This was the sixth consecutive month of rising spending and the fastest increase since May 2015. It was driven by strong spending on housing, education, and other services. Yet the sustainability of the boost in spending is not certain, especially given that wages have risen only modestly—indeed, in May, sales at chain retailers were down 4.0 percent from a year earlier. The government, however, is keen to see spending rise, especially as Japan’s export sector is at risk from the growing trade war between the United States and China. Another potential risk to spending is the government’s plan to raise national sales tax from October to improve the solvency of the nation’s pension system (more on this in the next section).5

    Factors that will influence Japan’s future path

    Japan is vulnerable to a number of external factors. Among these is the current US-China trade war which, as of this writing, is experiencing a pause in that new tariffs have been put on hold. Still, as talks take place under the threat of future tariffs, uncertainty remains about the future trading relationship between the world’s two biggest economies. Thus, from the perspective of Japanese companies, it is hard to plan supply chains. Add to that the weakness in the growth of business investment, both in Japan and elsewhere, which is likely related to this uncertainty. Moreover, the United States has threatened to impose tariffs on imports of all automobiles, especially vehicles produced in Europe and Japan, which adds to the uncertainty of global trade.6

    Japan is also vulnerable to the performance of the global electronics and automotive industries—both face headwinds. In the case of electronics, global demand is weakening,7 possibly due to consumers reevaluating the need to upgrade their devices. At the same time, investment in the industry has stalled owing to uncertainty about the future of global supply chains. In the case of the automotive industry, a combination of weakening global demand and trade uncertainty is an overhang.

    The Japanese government continues to affirm its commitment to raise the national sales tax later this year. This is expected to have a negative impact on consumer spending, as was the case in the past. The major area of uncertainty is whether the government will implement increases in spending that are sufficient to offset the negative impact of tax increases.

    Finally, there is the issue of monetary policy. The Bank of Japan (BOJ) has maintained a historically easy monetary policy for several years with the goal of boosting inflation toward the 2.0 percent target. Yet this policy has not succeeded in generating significantly higher inflation. Moreover, the latest data indicates that investors expect inflation to ease. The so-called “breakeven” rate, which is an excellent measure of investor expectations of inflation, has lately dropped to 0.20 percent. In other words, investors expect almost no inflation in the next several years.8 This is despite the fact that core inflation (overall inflation minus the impact of volatile food and energy prices) is currently running at 0.8 percent. Thus, investors evidently expect inflation to abate from current levels, even as the BOJ maintains an easy monetary policy. This likely reflects investor pessimism about the economic outlook. The question, then, is whether the BOJ will do anything to further ease monetary policy. For now, there is no indication that such a step is imminent. At the least, this likely means no further downward pressure on the value of the yen and possibly upward pressure. A rise in the value of the yen will hurt export competitiveness and exacerbate the problem of low inflation.

    Acknowledgments

    Cover image by: Tushar Barman

    Endnotes
      1. Megumi Fujikawa, “Japan surprises with 2.1% growth, but it’s not all roses,” Wall Street Journal, May 20, 2019. View in article

      2. Trading Economics, “Japan exports,” accessed July 15, 2019. View in article

      3. Jibun Bank, “Softer manufacturing conditions continue in June,” press release, July 1, 2019. View in article

      4. Trading Economics, “Japan household spending,” accessed July 15, 2019. View in article

      5. Kaori Kaneko and Tetsushi Kajimoto, “Japan household spending rises but wages fall in March,” Japan Today, May 10, 2019. View in article

      6. Levi Winchester, “Trump warning to EU: President ‘serious’ about car tariffs that would shock Germany,” Daily Express, June 18, 2019. View in article

      7. Enda Curran, “Warning shot to world economy as Singapore slumps, China exports drop,” Bloomberg, July 12, 2019. View in article

      8. Macrobond’s official website, accessed July 15, 2019. View in article

    Show moreShow less

    Topics in this article

    Economics , Japan , Asia Pacific (APAC) Economics

    Deloitte Global Economist Network

    The Deloitte Global Economist Network is a diverse group of economists that produce relevant, interesting and thought-provoking content for external and internal audiences. The Network’s industry and economics expertise allows us to bring sophisticated analysis to complex industry-based questions. Publications range from in-depth reports and thought leadership examining critical issues to executive briefs aimed at keeping Deloitte’s top management and partners abreast of topical issues.

    Learn more
    Get in touch
    Contact
    • Dr. Ira Kalish
    • Chief global economist
    • Deloitte Touche Tohmatsu Limited
    • ikalish@deloitte.com
    • +1 213 688 4765

    Download Subscribe

    Related content

    img Trending

    Japan: Mixed signals for the economy

    Article 4 years ago
    img Trending

    Japan: Economy shows signs of rebound

    Article 3 years ago
    img Trending

    Will political tensions derail economic gains in Asia Pacific?

    Article 3 years ago

    More in Economics

    • Global Weekly Economic Update Article2 days ago
    • Asian consumer outlook Article3 years ago
    • Building business resilience to the next economic slowdown Article3 years ago
    • Russia: Political news overshadows economic performance Article4 years ago
    • Monetary policy in emerging economies Article3 years ago
    • How the financial crisis reshaped the world’s workforce Article3 years ago
    Ira Kalish

    Ira Kalish

    Chief Global Economist, Deloitte Touche Tohmatsu

    Dr. Kalish is the Chief Global Economist of Deloitte Touche Tohmatsu Ltd. He is a specialist in global economic issues as well as the effects of economic, demographic, and social trends on the global business environment. He advises Deloitte clients as well as Deloitte’s leadership on economic issues and their impact on business strategy. In addition, he has given numerous presentations to corporations and trade organizations on topics related to the global economy. He is widely traveled and has given presentations in 47 countries on six continents. He has been quoted by the Wall Street Journal, The Economist, and The Financial Times. Dr. Kalish holds a bachelor’s degree in economics from Vassar College and a PhD in international economics from Johns Hopkins University.

    • ikalish@deloitte.com
    • +1 310 420 0392

    Share article highlights

    See something interesting? Simply select text and choose how to share it:

    Email a customized link that shows your highlighted text.
    Copy a customized link that shows your highlighted text.
    Copy your highlighted text.

    Japan has been saved

    Japan has been removed

    An Article Titled Japan already exists in Saved items

     
    Forgot password

    To stay logged in, change your functional cookie settings.

    OR

    Social login not available on Microsoft Edge browser at this time.

    Connect Accounts

    Connect your social accounts

    This is the first time you have logged in with a social network.

    You have previously logged in with a different account. To link your accounts, please re-authenticate.

    Log in with an existing social network:

    To connect with your existing account, please enter your password:

    OR

    Log in with an existing site account:

    To connect with your existing account, please enter your password:

    Forgot password

    Subscribe

    to receive more business insights, analysis, and perspectives from Deloitte Insights
    ✓ Link copied to clipboard
    • Contact us
    • Search Jobs
    • Submit RFP
    Follow Deloitte Insights:
    Global office directory Office locations
    XE-EN Location: XE-English  
    About Deloitte
    • Newsroom
    • Deloitte events
    • Our blog collections
    • Press releases
    • Press contacts
    • Corporate Responsibility & Sustainability
    • Report an ethics complaint
    Services
    • Audit & Assurance
    • Consulting
    • Financial Advisory
    • Risk Advisory
    • Tax
    • Deloitte Private
    • Legal
    • Sustainability
    Industries
    • Consumer
    • Energy, Resources & Industrials
    • Financial Services
    • Government & Public Services
    • Life Sciences & Health Care
    • MENA Sovereign Wealth Funds
    • Technology, Media & Telecommunications
    Careers
    • Job Search
    • Students
    • Experienced Hires
    • Executives
    • Life at Deloitte
    • Alumni
    • Diversity and Inclusion
    • About Deloitte
    • About Deloitte in the Middle East
    • Privacy
    • Terms of use
    • Cookies
    • Avature Privacy

    © 2022. See Terms of Use for more information.

    Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see About Deloitte to learn more about our global network of member firms.