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Elliot & Associates Research Japan Global Markets: The challenges of the Japanese economy
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By: Orley Luged Email Article
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Since the Fukushima nuclear disaster triggered by the giant tsunami that hit Japan in 2011, the country has gone through a difficult transition as a developed country and as one of the global economic leaders. As of 2012, Japan had the third highest GDP in the world but placed as the top nation with the greatest deficit in its national budget.

Several primary factors have brought about the present economic challenges of Japan in relation to the global market which used to be its primary source of its wealth, if not its virtual playground, from the 1960ís to the 1980ís. Here are the reasons for its economic woes at present.

1. Decrease in consumer confidence
Almost every country that experiences a calamity suddenly undergoes a period of depression, both economic-wise and socially. That is an obvious result to such devastating causes that can disrupt the natural, political and social environment, as well the human infrastructure needed for the delivery of essential public and private services. Business activity slows down as well as the consumption of non-essential goods. People prefer to save whatever resources they have for their daily survival needs. As things improve, however, as they must have already done so in the interim in Japan, people might become more upbeat. Other factors, nevertheless, complicate the situation, as we can glean from the other factors that continue to challenge Japanese society.

2. Unbalanced Demographics
Japan, not unlike many developed and developing countries such as Singapore, Sweden and others, has a shrinking population with a big part of which is made up of aging citizens. On the average, Japan has a ratio of two workers for each retiree, a rather large and unsustainable ratio compared to its previous more productive years.

This ratio means the government will have a harder time sourcing out funds to support its growing elderly population while seeking to address the other side of the equation by enhancing its number of productive workers that will support and sustain its economy into the future.

3. Energy Insecurity
Ever since the Fukushima event, the use of nuclear energy to provide power for industrial and general use has greatly diminished. Energy shortage and power costs have battered the Japanese economy as if it were a daily tsunami hitting its shores and wreaking havoc over its traditional role as a powerful economic and trade force in Asia as well as in the entire globe. Previously providing one-third of its energy requirements, nuclear energy has almost lost out totally to other power sources (coal or gas) which have to be imported; thus, aggravating the economic landscape that is already bleak as it is.

4. Lack of Confidence in Political Leadership
Until Prime Minister Abe came out with policies to revive the Japanese economy, the post-Fukushima scenario was a period of gloomy outlook for the nationís economy. Inviting local and foreign investors to rejuvenate the dwindling economy in the face of natural and global economic causes has somehow given new impetus for people to spend more aggressively than before.

The renewed confidence might just be the signal for Japanís recovery in spite of the existing challenges. However, implementation of new policies and economic thrusts sensitive to the realities of the present will determine how the nation will fare into the near future.

5. Establishing Productive Trade Relations
One factor that observers have felt must be addressed is the repositioning of Japan as a more active trade partner with growing economies in Asia as well as those in the trans-Pacific Region. The road ahead is not very clear; however, like most nations in general, the prospects of growth are rife. It could be the right direction that Japan needs to reinvigorate its economy and reclaim its position as a leader in global trading.

Rising from the literal ashes of the last world war to become a world economic power, Japan is not a newcomer in terms of overcoming great odds and achieving dramatic success and economic development. The character of the Japanese people has been proven time and time again in the past. No doubt, the nation will be able to face its challenges with the cooperation of other nations which share the same challenges. The great nation that once tried to live as an isolated island separated
from the rest of the world cannot afford to move on without joining the global family of nations toward a more united, progressive and equitable global community.

Reference: "How can Japan compete in a changing global market?", Around table report, Clara Gillispie.

Elliott & Associates Research Global Markets is the prime global political-risk research and consulting company of the world. We provide information and insights into current political events that affect markets in order to assist clients foresee and react to volatility and opportunities wherever they conduct business.

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