Canada Wood Today | The Canada Wood Group

Japan Economic Update: What’s Not to Like?

Shawn Lawlor

By Shawn Lawlor

Director, Canada Wood Japan

January 15, 2018

A series of positive economic indicators are boosting Japan’s prospects for prosperous 2018. With the Prime Minister Shinzo Abe government now at its five-year mark, Japan is currently in its second longest growth phase since the end of WWII. GDP growth for 2017 is widely expected to reach 1.8%, beating out initial forecasts in the 1.2-1.3% range. The Nikkei 225 equity index reached the 23,000 mark in January, achieving its strongest performance since 1992. At 2.7% unemployment, one has to go back to the early 1970’s to find a similar statistical expression of virtually full employment.  Broad based global recovery in 2017 supported multi-sector growth in Japan including exports, inbound tourism, public infrastructure, capital investment and commercial real estate.  Even seemingly moribund industries such as Japanese semi-conductors, electronics and machinery are showing signs of life and repatriation of manufacturing.

How are the prospects lining up for 2018? With the OECD forecasting world economic growth to accelerate to 3.7%, global tail winds are expected to support continued growth in manufacturing and exports. Domestically, rising capita investment and wages are expected. Corporate Japan has accumulated a war chest in excess of US $2.5 trillion. Economists suggest that as the labour pool crunch becomes increasingly severe in 2018, Japan’s companies will need to loosen the purse strings to accelerate capital investment and boost wages to overcome growth capacity restraints and secure needed help. Prime Minister Abe is currently lobbying business leaders and labour groups to push for 3% wage increases in 2018. And while only modest low single digit raises are only likely in the cards for most salaried employees, industries with severe labour shortages, such as logistics and transportation, witnessed pay increases by as much as 12% in 2017. While consumer spending and inflation have thus far remained relatively tame, strong global growth, full employment and improving wages, rising asset values and capital investment build a strong context for improving consumer spending moving forward into 2018.