The Japanese economy grew at an annualized 3.9 percent from January to March, which is beyond an initial estimate of 2.4 percent, due to increased spending among consumers and the business sector. The economy itself expanded 1.0 percent, surpassing a previous estimate of 0.6 percent. Analysts predict slower growth from April to June.
Prime Minister’s Shinzo Abe’s economic policy, ‘Abenomics,’ is controversial among some economists, but the economy is showing a degree of improvement. Critics note that Abe’s policies have favored corporations instead of working people, but no one can argue with Japan’s improved status for 2015. Corporate investment rose from an estimated 0.4 percent in the first quarter to an official 2.5 percent.
In regards to wages, Japan saw its largest increase in wages in a decade in April, and analysts believe that income is close to keeping up with inflation to boost consumer and business spending. Opponents of the Abe government note that the prime minister has yet to convince corporations to invest back into the economy, but some firms are feeling comfortable enough to spend capital. Online and mobile investment is spurring growth in wholesale and retail, and Japanese companies are taking advantage of a weaker yen by moving operations back to Japan. The tourist industry also has enough reserves to make renovations for attracting visitors and tourists.
With that being said, Japan is still undergoing major hurdles. Other areas of the economy show little improvement, including sales and machine orders. Further, Japan’s export economy remains lackluster, and upticks in inventories suggest that demand is not up to par in major markets, such as the United States. Many economists and Japanese business leaders are also concerned that a much weaker yen could hurt smaller companies and consumers as import prices increase. Private spending only grew 0.4 percent in Q1, which is not good for an economy that is mostly based on consumer spending, and public spending needs improvement. Almost two-thirds of Japan’s economy is comprised of consumer spending.
The Bank of Japan is confident that lower oil prices will eventually boost consumer confidence, but the central bank and the government will have a tougher time convincing people to spend money after officials raised sales taxes in 2014. The increase was meant to pay down the national debt, but raising taxes on goods is never a popular move in Japan, regardless of the circumstance. Japan’s labor market is tighter and wages are up, but excess spending is not on the radar of many Japanese citizens.