Japan is in its second recession in the past two years, as its economy has contracted for the second quarter in a row. GDP decreased 1.6% from July 2014 to September 2014, despite forecasts of an increase of 2.1%.
In 2013, Japan printed out hundreds of billions of dollars in yen to buy government bonds. It was an attempt to balance the budget, and while it gave the appearance of economic growth, it lowered the value of the yen. Merchants sat on the wealth and didn’t distribute it to workers. Japanese incomes began to stagnate and/or decrease. Lower wages, compounded with increased sales tax, are making Japanese people feel poorer than ever. This explains the apparent lack of consumer spending and investment within the Japanese economy.
Japan’s work culture encourages long workdays, overtime and heavy career commitment, leaving less time for raising families. This is impeding on population growth. If you’re in Japan, you’re more likely to take care of your parents than a child, as 25% of Japan’s population is over 65. At this rate, Japan’s work force is predicted to dwindle and the amount of citizens living on a fixed income and receiving benefits will increase. For many economists, this seems to be the time for structural reforms rather than more fiscal policy. Suggestions so far include investing in infrastructure, expanding and incentivizing the work force, and increasing agricultural competition.
Prime Minister Shinzo Abe is now calling for an early election in an attempt to delay the 10% increase in sales tax set for 2015. This tax increase was intended to lessen Japan’s large public debt, but the sales tax increase in 2013 was ill-timed. Abe may fear increasing the tax again will only make things worse. Yoshihide Suga, chief spokesperson of the Japanese government, has described Japan’s economic situation as “severe”. Japan is the third largest economy in the world and its economic struggle could spell trouble for US companies with economic ties to Japan, as it’s the US fourth-largest trading partner.