The Japanese are rediscovering the joys of evenings at restaurants and karaoke, for the greater good of a Japanese economy which has finally returned to its pre-coronavirus pandemic level. An improvement, however, threatened by gloomy prospects, particularly in terms of inflation. Aware of the concerns of the population on this point, the Prime Minister, Fumio Kishida, called on Monday, August 15, his government to “to deal with the current emergency”. “The soaring prices of basic necessities, including bread and noodles, are very worrying”said Mr. Kishida, who fears a jump of more than 20% in wheat prices from October.
Concern tempered the announcement, a few hours earlier, of a gross domestic product (GDP) up 0.5% between April and June, or 2.2% over one year. The Japanese economy grew for the third consecutive quarter, which allowed it to slightly exceed the level of the last quarter of 2019, just before the pandemic.
Yen weakness
Growth in personal spending, up 1.2% from the previous quarter, made a big contribution to this. “The jump in consumption was driven by dining out, overnight stays in hotels and leisure activities”, observes Naoyuki Shiraishi, of the Japan Research Institute. The Japanese started to go out again after the lifting, in March, of travel restrictions applied to stem a sixth wave of contamination. At the same time, corporate capital investment, driven by efforts to promote the digital transition, grew by 1.4%, after a decline of 0.3% between January and March.
“Companies are less and less hesitant to raise prices and are doing it faster,” found Teikoku Databank.
However, the euphoria should not last. In addition to the fact that GDP growth is below economists’ expectations, which had forecast a 2.7% increase, the Japanese economy should suffer the repercussions of the global economic slowdown, which comes on top of the persistent weakness of the yen, at around 137 yen to the dollar, its lowest level for twenty-five years. All this fuels inflation. At 2.4% in June, it did not reach the levels of the United States or Germany, where it jumped 8.5% and 7.5% respectively. However, it displeases the Japanese accustomed to low price changes during the long period of deflationary pressures that began in the late 1990s – and which seems to be coming to an end.
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