2023-05-27 19:12:32
BeijingJapan has experienced days of euphoria in the stock market, with the Nikkei index breaking records and reaching a high not seen in 33 years. Since the 1990s, during the great real estate bubble, such spectacular increases had not been recorded. The bullish behavior of Tokyo’s parquets responds to factors external to the Japanese economy, but which affect its stability and can strengthen it. The hope that an agreement will be reached on the US debt ceiling and the weakness of the yen are behind this stock market effervescence.
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A weak yen benefits Japanese exports as it increases their price competitiveness in the international market. For this reason, the quotation of exporting companies soared in the face of the prospect of increased earnings from sales abroad. The rise in the stock market also shows that the Japanese stock market is attractive. At a time when investors are wary of Chinese regulations or instability in the United States; Japan, the third largest stock market in the world, is presented as a safe haven.
At a time of economic uncertainty, Japan presents itself to the markets as a safe haven
It is a proof that Warren Buffett, one of the most famous investors in the world, visited Tokyo last month, from where he announced that he would increase his portfolio of Japanese investments. The rise in the stock market has been driven by foreign institutions that have bought since the beginning of April to the value of 44 billion dollars. Analysts emphasize that these are long-term investments and not speculative money. Regardless of the optimism that is experienced in the stock market, however, the Japanese economy shows signs of beginning to overcome the crisis caused by the pandemic.
Japan ended 2022 in technical recession, adding two quarters of negative growth. But now the data for the first quarter shows a faster recovery than expected. GDP grew by 1.6% annualized between January and March, driven by consumption. The fall in restrictions due to covid-19 has encouraged private consumption, which in Japan contributes more than half to the country’s GDP, and in the first quarter it increased by 0.6% compared to the previous three months. The opening of the border to tourism has also helped to increase spending on services. The full recovery of tourism this summer is expected to boost economic growth. The increase in domestic demand compensated for the weakness of exports weighed down by the international situation. A weaker yen will help them recover.
Inflation in Japan is close to 4%, a figure envied by the West, but which in this country is a record figure due to the decades of deflation it has suffered. The indicator doubles the Bank of Japan’s goal of holding CPI to 2%. The increase in energy and food prices is responsible for inflation. Japan imports almost all of the oil and gas it consumes. The government of conservative Fumio Kishida has implemented measures to help families in the form of bonds to pay for electricity and basic services.
4%
It is the inflation that exists in Japan, a figure that is not usual in the Asian country
The Prime Minister has also put pressure on the business world to raise wages. One of the consequences of the decades of deflation has been the wage freeze. The Confederation of Trade Unions of Japan is asking for a 5% wage increase in the new agreements that are signed. However, the increase is expected to average around 3.8% in the end, which would still be the biggest increase since 1993.
The fight against negative inflation
Japan has been struggling with negative inflation since the early 1990s. The three decades of deflation led to stagnation in economic growth. Stable prices and the absence of inflation prevented crises, but also growth and increased productivity for companies. The population had no incentive to consume or invest because they did not expect a rise in prices. The wage freeze also did not stimulate spending. With the arrival of Shinzo Abe in government in 2013 it started a program of economic reforms known as Abenomicswhich failed to stimulate spending.
The hope is that a paradigm shift will take place from now on and inflation will be sustained, even though it has arrived triggered by the war in Ukraine and the disruption of global supply chains due to the pandemic. Japan wants inflation around 2% to revive consumption and growth.
Despite the good prospects, the Asian country carries structural problems such as an aging population, a low birth rate and a resistance to opening the doors to emigrants to increase the labor force. In addition, their debt remains a serious problem. According to data from the International Monetary Fund, in the last fiscal year the debt reached 262.5% of the country’s GDP and more than 51% of the debt bonds are in the hands of its central bank.
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