Japan’s economy is stumbling due to three big problems: poor trade terms, faulty inflation stats, and a weak yen.
Since the third quarter of 2020, Japan has faced nine straight quarters of worsening trade.
Import costs shot up by 60.7%, but exports only grew by 27.7%. This shook Japan’s national income, causing a 4.6% drop.
Two main reasons explain the trade woes. First, global recovery from COVID-19 and Russia’s invasion of Ukraine spiked commodity prices.
Second, the U.S. and Europe tightened their money policies, but Japan didn’t, weakening the yen.
Still, higher interest rates abroad and a weaker yen slightly lifted Japan’s national income by 3%.
But there’s a catch. Japan’s recovery is lagging behind other countries. High inflation, peaking at 4.3% in January 2023, crushed consumer spending.
To help, the government gave subsidies to oil and gas companies and even stepped into currency markets in late 2022 for the first time since 1998.
Yet another issue exists. Official inflation numbers don’t seem accurate. Alternative calculations suggest real inflation is higher.
For example, a Bank of Japan survey showed people feel prices are rising much faster. In June, the public perceived inflation at a startling 14.7%, way above the official rate.
So what’s the impact? Inaccurate inflation numbers confuse policymakers and businesses alike.
This makes planning hard and raises doubts about the government’s emergency steps. As a result, much-needed, long-term economic reforms are still on hold.
In simple terms, Japan faces a tough economic puzzle.
It has to fix bad trade, get real about inflation, and stabilize its currency. With the world changing fast, acting now is more important than ever.