As concerns about the coronavirus recede, Japan returns to economic growth

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As concerns about the coronavirus recede, Japan returns to economic growth

Source: AUN News

TOKYO — The restaurants are packed. The malls are crowded. People are moving about. And as consumers began to abandon the measures that had kept coronavirus infections among the lowest of any developed nation after more than two years of the pandemic, Japan’s economy started to expand.

Japan’s economy continued to grow in the year’s second half despite Chinese lockdowns, skyrocketing inflation, and excessive energy costs. Domestic consumption of products and services increased dramatically. According to government figures released on Monday, the nation’s economy, the third largest behind that of the United States and China, expanded at an annualized pace of 2.2 percent.

The second-quarter result came after the first three months of the year, when consumers withdrew to their homes due to the rapid spread of the Omicron variety, saw growth of 0% (reduced from an early reading of a 1% decline).

Once the initial Omicron wave had passed, shoppers and domestic travelers flooded the streets. The number of cases then spiked back up to record highs for Japan. Still, this time the heavily immunized and weary public has responded less anxiously, according to Izumi Duvalier, head of Japan economics at Bank of America.

She added that we experienced a significant increase in mobility following the Omicron wave’s conclusion and significant catch-up expenditure in the restaurant and travel sectors.

Contraction and expansion

The latest growth report suggests that after more than two years of yo-yoing between expansion and contraction, Japan’s economy may finally be back on track. Ms. Devalier added that consumers, particularly elderly people, “are susceptible to Covid dangers,” adding that the country still “lags” economically behind other developed countries.

She stated, “we have had this gradual recovery and normalization from Covid,” as that sensitivity has gradually decreased over time.

Despite significant obstacles, notably for Japan’s small- and medium-sized businesses, the second quarter saw growth. Retailers find it challenging to popular stock items like air conditioners, and manufacturers find it difficult to obtain some essential components for their products due to China’s Covid lockdowns.

A weak yen and increasing prices have also impacted companies. The value of the Japanese yen has fallen by more than 20% against the US dollar during the past year. While this has benefited exporters, whose goods have become more affordable to clients abroad, it has also increased the cost of imports, which were already higher due to shortages and supply chain disruptions brought on by the pandemic and Russia’s conflict in Ukraine.

Even though Japan’s inflation rate, which was only about 2 percent in June, was still much lower than that of many other nations, it has forced some businesses to raise prices significantly for the first time in a long time, which could potentially reduce demand from customers used to make the duplicate purchases year after year.

Other difficulties confront Japan, both at home and abroad. As pandemic subsidies stop and foot traffic to their firms stays below pre-pandemic levels, small and medium-sized businesses are expected to struggle.

Concerns about geopolitics

Geopolitical concerns are also making Japan’s major sectors more uncertain. Politicians in Japan are worried about potential economic disruptions due to tensions between the United States and China over Speaker Nancy Pelosi’s travel to Taiwan this month. Taiwan is Japan’s fourth-largest trading partner and a significant producer of semiconductors, which are crucial parts of the country’s substantial electronics and automobile sectors.

In terms of the long-term economic prospects for Japan, Ms. Devalier remarked, “Short-term momentum is fairly solid, but beyond that, we are rather cautious.”

At home, she anticipates a decline in consumption as people’s passion for buying lessens, and they become accustomed to the new normal of coping with the pandemic. Inflation is outpacing wage growth, which has stagnated for years and is likely to impact consumption. She added, “for manufacturing and exports, we anticipate a decrease in momentum reflecting our expectation of lower global growth.”

Analysis by: Advocacy Unified Network

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