After a dramatic fall in GDP Japan now faces the impact of the coronavirusby David Warren / February 26, 2020 / Leave a comment
2020—the year in which Japan should be the centre of world attention, with the Olympics and Paralympics in Tokyo in August—has not started well for the Japanese Government. New economic figures show a dramatic shrinkage in Japanese GDP over the last quarter of 2019—6.3 per cent on an annualised basis, compared with the 3.8 per cent that forecasters had expected after Typhoon Hagibis, which killed nearly 100 people in October, and in the light of weak global demand.
The general assumption is that the slump has been caused by the Japanese sales tax increase from 8 per cent to 10 per cent at the beginning of October. We have been here before. In 1997, the Japanese government raised the tax (which had been introduced only eight years earlier) from a measly 3 per cent to 5 per cent, but the simultaneous Asian financial crisis meant that the Japanese economy promptly tipped into recession. Politicians were so haunted by this experience that it took 17 years for any government to think about a further hike, until Prime Minister Abe nudged it up again in 2014 to 8 per cent, only to see Japanese growth, never very dramatic over the last three decades, fall into technical recession again. History now appears to have repeated itself for the third time.
The additionally worrying factor is that these figures predate the coronavirus. With the likelihood of a sharp falling away of Chinese tourist numbers, the negative impact of the slowdown in the Chinese economy on Japanese firms investing in and trading with China, as well as the damage to Asian supply chains, we must expect the first quarter figures for Japan in 2020 to reflect the growing crisis. With China’s share of the world economy now at around 16 per cent—four times that at the time of the SARS outbreak in 2002—the effects on global GDP are likely to be grave. Finance Minister Taro Aso urged countries with the fiscal space to take “bold policy measures” to boost growth at the G20 finance ministers meeting in Riyadh on 23rd February.
Is this a self-inflicted wound, as some commentators argue, and what policy tools can Japan use to avoid recession?
The Governor of the Bank of Japan, Haruhiko Kuroda, has struck a reassuring and calming…