Autos are lined up on a dock in Tsurumi Ward, Yokohama waiting to be shipped overseas. (©Sankei by Masamichi Kirihara)
Japan's gross domestic product (GDP) improved during the April-June quarter. Real GDP turned positive for the first time in two quarters. Excluding the effects of price fluctuations, it grew at an annualized rate of 3.1%.
Nominal GDP also grew, reaching approximately ¥607.9 trillion JPY ($4.22 trillion USD) on an annualized basis. It is the first time it has reached the ¥600 trillion yen level.
32 Years to Get There
In 2015, the Shinzo Abe administration set the goal of achieving a GDP of ¥600 trillion in nominal terms. Due to prolonged economic stagnation, it has taken more than 32 years to reach that goal since the GDP first topped ¥500 trillion ($3.47 trillion) in the October-December quarter of 1991. The question now is whether we can truly escape the doldrums and achieve sustainable growth.
Japan's GDP, once the world's second-largest, was overtaken by China and now trails that of Germany. Rapid population decline also tends to push GDP down. If these trends continue, Japan's national power and stature as a major economic power may further weaken. Aiming for steady growth is therefore of the greatest significance.
Sharing the Benefits
Of course, even if GDP rises, it means nothing unless the nation's people share the benefits. Currently, high prices make daily life difficult and people find it difficult to actually feel GDP growth. At the same time, the growth in nominal GDP was itself to a certain extent driven by rising prices at the time it was measured.
This is precisely why we must ensure a steady trend of wage hikes. Recognizing that the Japanese economy stands at a crossroads, we must create a virtuous cycle in which personal consumption drives the economy.
Cautious Optimism
Personal consumption in the April-June period increased 1.0% from the previous quarter, the first increase in five quarters. It is a good sign that consumption, which had been sluggish, has picked up. That is thanks in part to wage hikes during the spring labor offensive.
Capital investment also increased for the first time in two quarters.
However, it is still too early to become optimistic about the future. The recovery in consumption was partly due to a rebound in auto sales, which had declined due to safety certification fraud issues. Although real wages have turned positive for the first time in 27 months, whether that trend will hold will depend on factors such as future price trends.
Many companies have managed to increase their profits due to factors like the weak yen. Ideally, companies will make proactive investments to further increase profits and improve labor productivity. This would help strengthen the trend toward higher wages.
The key to sustainability will be whether or not the private sector can take the lead in achieving organic growth.
Policies Led by Effective Political Leadership
Prime Minister Fumio Kishida has announced that he will not seek reelection as president of the Liberal-Democratic Party (LDP) and efforts to select a new president are picking up steam within the party.
What do we need to do to enjoy a strong economy and improve the lives of the Japanese people? Hopefully, during the LDP race, the various candidates will discuss effective economic policies for bringing this about.
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(Read the editorial in Japanese.)
Author: Editorial Board, The Sankei Shimbun
