Japan's economy is facing the double burden of economic stagnation and high prices. Policies to support the lives of those who have been hard hit are needed.
The nation's gross domestic product fell at an annualized rate of 1% in the January-March quarter. The application of quasi-emergency measures to prevent the spread of the coronavirus, such as limiting the business of restaurants, played a part in the downturn.
Many take the view that Japan will return to growth in the April-June quarter, but the situation remains in the balance, as the Ukraine crisis and a weak yen spur high commodity prices.
Average consumer prices grew by 2% in April. Excluding the period affected by the consumption tax hike, this is the highest level in 13 1/2 years. Rising prices for gasoline, electricity and gas, and food stood out. Wages, on the other hand, have been slow to increase, and real wages, after subtracting price hikes, have fallen into negative territory compared to the previous year. There are predictions that prices will continue to rise, and consumption could cool further.
Of concern is the widening of economic disparity exposed by the coronavirus crisis.
Many daily necessities are getting more expensive. The lower a person's income, the harder such increases hit. And nonregular employees working at restaurants and similar establishments were already facing hardship due to the COVID crisis.
The damage is particularly great among small- and medium-sized businesses, which account for 70% of the labor force in Japan. Since a lot of their work is subcontracting, they cannot pass on raw materials costs, leaving them stuck with paying the difference. This is in stark contrast with large companies that have seen a stream of good business results fueled by a weak yen.
The response of the administration of Prime Minister Fumio Kishida, however, has been disjointed. While it has spent over 1 trillion yen (about $7.82 billion) on industry subsidies to curb rising gasoline prices, it has not extended support for low income earners to some households, such as those without children.
Meanwhile a 100,000-yen handout that the government decided to pay to households with children under the age of 18 last year included those with financial leeway. It is said that many of them just saved the money, and so the handout did little to boost the economy. If measures that similarly miss the mark continue, then they will end up as mere pork-barreling.
The measures taken are also inconsistent with the Bank of Japan's policies. While the inflation rate has reached the central bank's 2% target, it has judged that this is not the result of economic recovery, and is continuing its ultra-easy monetary policy of "a different dimension." If low-interest yen continues to be sold, then price increases will yet accelerate.
If measures are not taken to correct economic disparity and support consumption, then economic recovery will remain doubtful. The government and the Bank of Japan should cooperate to work out effective countermeasures.